Discover Benefits of CDs and IRAs

About CD savings and investments

What is a CD?

A CD is a savings account that holds a fixed amount of money for a fixed period of time. You agree to deposit a certain amount of money until a designated maturity date, and in return, the bank pays you interest. If you make an early withdrawal before the maturity date, you will incur a penalty, but after the maturity date, you can withdraw the principal amount and interest earned.

Callable versus non-callable certificates of deposit

A callable CD allows the bank to redeem the CD any time after the lock period. A non-callable CD does not allow the bank to redeem the CD during the term.

What are the advantages of CDs?

• CDs are considered a low-risk investment because the deposits are FDIC insured up to a certain amount and receive a fixed rate or return.
• CDs are a safe option for diversification.
• CD interest rates have the potential to be higher than savings or money market account rates, giving you a flexible way to grow your savings or investments over time.

How to get started

When selecting a CD, decide how long you can leave the money without needing it. This will help determine your term. Also, compare rates, as they can vary by length of term. Then select a type of CD based on your goals, or explore the CD laddering technique.

How to build a CD ladder

Building a CD ladder consists of buying a series of CDs that mature in sequential order.

For example, one way to build a ladder with $5,000 is to buy five individual CDs-a 12-month, a 24-month, a 36-month, a 48-month and a 60-month-at $1,000 each. When your first CD matures in 12 months, you simply reinvest it into a new 60-month CD. You can continue doing this each year as the next CD matures.

What are the benefits? This technique gives you investment flexibility and allows you to have cash available at yearly intervals if you need it. It also allows you to take advantage of the best CD interest rates as they occur.

What to know about IRAs

IRA definition

An IRA is an account you deposit money into specifically for your retirement. You can save or invest through a variety of products inside an IRA, including mutual funds, stocks, CDs, bonds and other financial products, so that your retirement savings has the opportunity to grow. You can begin to withdraw money without a penalty when you're 59 ½ years old. Early withdrawal from your IRA means you'll have to pay a 10% penalty.

Traditional IRA versus Roth IRA

The major difference between traditional and Roth IRAs is how your money is taxed:

• Traditional IRAs are tax-deferred accounts. Your contributions and investment earnings are tax-free until you withdraw the money later in life—then it's taxed.
• Roth IRAs are tax-advantage accounts. You pay taxes before the money goes into your account, and your money grows tax-free for life, even as you make withdrawals.

Making retirement decisions

A MidFirst Bank personal banker can direct you toward which avenue might best suit your retirement needs—that's what relationship banking is all about. Contact us today to talk about the right plan for you. 

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