While it may still seem like a ways off, now’s the time to start budgeting for your winter holiday expenses if you haven’t already. Holiday season spending is expected to rise 3.2% in 2024, according to the Mastercard Economics Institute. A late Thanksgiving also means that there will be fewer days to complete your holiday shopping.
Holiday expenses include more than just gifts — you may need to budget for travel, decorations, family dinners and other activities. All these expenses add up, so to ease the burden on your wallet, consider setting aside a holiday fund in a certificate of deposit (CD) that earns a guaranteed interest rate on your savings.
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What is a CD?
A certificate of deposit (CD) is a secure and effective savings tool offered by banks and credit unions. With a traditional or high-yield savings account, your interest rate, or annual percentage yield (APY), is variable and you can deposit and withdraw from your account as needed. A CD differs in that it offers a fixed interest rate for a specific amount of time, known as the term.
You can typically only make a single, upfront deposit to the CD and may face penalties if you withdraw your money before your CD matures. CDs generally offer slightly higher APYs than high-yield savings accounts and term lengths range from three months to five years. CDs typically don’t come with monthly fees and are protected by FDIC insurance.
Why now’s a good time to open a CD
With many banks offering great rates on short-term CDs, if you open a two- or three-month CD now, you’ll have access to your funds in time for the holidays, or at least by the time your December credit card statement is due in January. You can use the extra cash from the interest earned during your CD term to stretch your holiday spending power.
Alternatively, you can open a 12-month CD now to save for next year’s holiday season since the longer the CD term, the more interest you’ll earn. No-penalty CDs are also an option, allowing you to withdraw your funds before the maturity date, but they generally have minimum deposit requirements and pay lower interest rates.
How much can you earn with a CD?
How much money you’ll earn for parking your holiday fund in a CD depends on the amount you deposit, APY and term length. As an example, if you deposit $1,000 into a three-month CD with a 5% APY, you’ll receive an extra $12.55 in interest at the end of the term. However, if you deposit $1,000 into a one-year CD with a 5% APY, you’ll earn $51.16 in interest. You can use CNBC Select’s free savings calculator to see how much you’ll earn at different interest rates and terms.
Keeping your money in a CD locks in a fixed interest rate, so you’ll know exactly how much you’ll earn for the term length. And since you’ll face an early withdrawal penalty for accessing your money before the term ends, you’ll have plenty of incentive not to touch those funds until the CD matures.
For an extra bump, you can use a credit card that offers a high rate of cash back or travel rewards points for your purchases during the holiday season and then use the funds from your CD to pay off the credit card in full when the bill is due.
Top short-term CDs to consider
If you’re looking for a three-month CD, Bask Bank offers a strong APY and a relatively low $1,000 minimum deposit requirement.
Bask Bank CDs
Bask Bank is a division of Texas Capital Bank, a Member FDIC.
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Annual Percentage Yield (APY)
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Terms
From 3 months to 24 months
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Minimum balance
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Monthly fee
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Early withdrawal penalty fee
You may withdraw interest that has been credited to your account during the current term without penalty, but you will be subject to an early withdrawal penalty if any portion of your principal balance is withdrawn: CDs with terms of 6 months up to and including 1 year are subject to a fee of 90 days of simple interest based on the principal amount withdrawn; CDs with terms greater than 12 months are subject to a fee of 180 days of interest based on the principal amount withdrawn. If your accrued interest is less than the penalty’s total amount, the difference will be deducted from your principal.
Ally Bank® CDs
Ally Bank® is a Member FDIC.
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Annual Percentage Yield (APY)
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Terms
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Minimum balance
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Monthly fee
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Early withdrawal penalty fee
High Yield CDs and Raise Your Rate CDs have early withdrawal penalties that vary based on your CD term. With the No Penalty CD, withdraw all your money any time after the first 6 days following the date you funded the account and keep the interest earned with no penalty.
Barclays CDs
Barclays Bank Delaware is a Member FDIC.
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Annual Percentage Yield (APY)
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Terms
From 3 months to 60 months
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Minimum balance
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Monthly fee
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Early withdrawal penalty fee
A penalty may be charged for early withdrawal.
Synchrony Bank CDs
Synchrony Bank is a Member FDIC.
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Annual Percentage Yield (APY)
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Terms
From 3 months to 60 months
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Minimum balance
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Monthly fee
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Early withdrawal penalty fee
There may be an early withdrawal penalty if you withdraw funds from the principal prior to the CD maturity date (the last day of the CD term). The penalty is applied to the amount of principal withdrawn (there’s no penalty on interest). For the No-Penalty CD, early withdrawals are not permitted within the first 6 days after account funding. Following that, only withdrawal of the entire balance is allowed.
APYs are subject to change at any time without notice. Offers apply to personal accounts only. Fees may reduce earnings. For CD accounts, a penalty may be imposed for early withdrawals. After maturity, if your CD rolls over, you will earn the offered rate of interest for your CD type in effect at that time.
Keep in mind that APY rates fluctuate (up or down) as the Fed rate changes. Once you open your account with a bank, your rate should not change during your CD term.
Steps to take before opening a CD
Before opening a CD for your holiday fund, you’ll need to establish a clear savings target — research costs and review expenses from the previous holiday season to estimate your spending.
While a high APY is important when looking for a new CD, it shouldn’t be the only factor. Sometimes the bank with the highest interest rate may not be the best fit, so it’s important to shop around before opening an account.
Compare the pros and cons of different banks
One big decision is whether you want a bank with local branches or you’re fine with an online bank for your CD. For many people, an online bank suits their needs with no problems, while others like a local branch where they can talk to a banker and open their account in person.
You’ll want to look at early withdrawal penalties and check if there are any minimum deposit requirements or monthly fees. Also, some banks only offer their advertised highest APY on longer-term CD accounts or ones with high minimum balance requirements, so you’ll want to read the fine print to be sure that your expectations align with what the account offers.
Read reviews about several banks
Reviews from other customers can help you narrow your choice between several options. If lots of reviews are complaining about a bank you’re considering, it may influence you to go in a different direction. And if lots of reviews have positive feedback, it may elevate that bank over ones with more negative or average feedback.
Consider the customer service
Does the bank you’re considering have high ratings for customer service? Are customer service agents available around the clock? When reading reviews, see what types of issues or questions other customers have had and whether they feel like the bank has properly addressed them.
For online banks, you’ll want to note the ease of reaching a human by phone or if the bank uses mostly online correspondence, such as online chat or secure messaging.
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