Banzai, Author at Country Bank- Made To Make A Difference

Your credit score may seem random, but it tells lenders and other creditors a lot about your financial behavior. It’s calculated from a mix of factors in your credit report and suggests how likely you are to fulfill financial obligations, such as a lease or loan.

What is a Credit Score?

Every credit score falls somewhere between 300 and 850. The higher the number, the better your credit history. If you don’t have a credit history, you’ll start at 300, not 0. A score of 670 or higher is considered “very good,” but the average score nationwide is around 700. Keep in mind that older people tend to have higher credit scores than younger people.

How a Credit Score is Used

Your credit score is used by lenders, creditors, employers, and even insurance companies to gauge your creditworthiness. The more creditworthy you are, the easier and cheaper it is to borrow money, secure insurance, and qualify for lower interest rates.

Creditworthiness goes beyond finances. Future employers and landlords may check your credit score to assess how responsible you are and decide whether to rent you an apartment or offer you a job. In short, a good credit score matters.

What’s Included in Your Credit Score

Technically, you have several different credit scores—one from each of the main credit bureaus, Experian, Equifax, and TransUnion. Each of these bureaus collects data on your financial behavior and uses it to calculate a dynamic score that changes based on the information they have and even the date you check it.

Your credit score is constantly changing based on these factors:

Payment history (35%)
Amount owed (30%)
Account length (15%)
Mix of accounts types (10%)
New credit (10%)

What’s Not Included in Your Credit Score

Your saving and checking account balances, income, and buying habits don’t factor in your credit score—although lenders may use some info, like income, elsewhere on a credit application.

Assets like a car purchased without a loan won’t appear, either. There’s also no personal info like your marital status, race, or religious and political affiliations.

In the past, credit reports sometimes contained public records like tax liens, parking tickets, and the like, but they don’t anymore.

How to Improve Your Credit Score

The best way to boost your credit score is to manage your payment history. Pay on time, in full, and avoid late or missed payments. To do this, only spend what you can afford and don’t run balances too high or overextend yourself with loan payments. Staying below your credit limit helps you get and keep a good credit score.

You may think that the best way to keep your credit score high is to avoid using credit, but that’s not true. Not using credit gives you a bad credit score, just like using too much credit does. Balance is key.

Where Did Credit Scores Come From?

Credit scores weren’t standardized until 1989. Before that, businesses used credit reporting methods that were a lot more subjective and based on character assessments and things like age, race, and marital status—all factors that are absent from today’s credit reports in favor of analytical models.

In the 1960s, there were thousands of credit bureaus. That number eventually shrank to three major bureaus. In 1989, the Fair Isaac Corporation introduced a credit scoring model and the first generalizable credit score—the FICO score, which is still used today. In the mid-1990s, mortgage guarantors Fannie Mae and Freddie Mac integrated FICO scores as part of their mortgage decision-making, and credit scores were entrenched into the modern-day financial process.

Boost Your Score Starting Now

Sometimes, you’ve got to spend money to make money, and the same is true for credit scores. You can’t buy a better credit score outright, but using credit wisely is a tried-and-true method for boosting your score over time.

Disclaimer

While we hope you find this content useful, it is only intended to serve as a starting point. Your next step is to speak with a qualified, licensed professional who can provide advice tailored to your individual circumstances. Nothing in this article, nor in any associated resources, should be construed as financial or legal advice. Furthermore, while we have made good faith efforts to ensure that the information presented was correct as of the date the content was prepared, we are unable to guarantee that it remains accurate today.

Neither Banzai nor its sponsoring partners make any warranties or representations as to the accuracy, applicability, completeness, or suitability for any particular purpose of the information contained herein. Banzai and its sponsoring partners expressly disclaim any liability arising from the use or misuse of these materials and, by visiting this site, you agree to release Banzai and its sponsoring partners from any such liability. Do not rely upon the information provided in this content when making decisions regarding financial or legal matters without first consulting with a qualified, licensed professional.

Income and expenses are two of the most fundamental aspects of a budget.

Income

To have a budget, you need income. Income is any money that you receive. The most common type of income is earnings from a job, but other forms of income include interest (such as from a savings account) and investment earnings. Depending on the kind of income, you may earn it at regular intervals (weekly, biweekly, monthly, etc.) or sporadically, such as when you make a sale or earn a commission.

Expenses

Expenses are all the things you spend money on, from the frivolous (an extra treat after a long day) to the required (housing and utility payments).

It may be helpful to think of your expenses as falling into two categories: needs and wants. Needs are the things you require to live and work in relative comfort. This includes things like…

Food
Housing
Electricity
Heat/AC
Transportation Costs
Clothing

Wants are the things you may not need to survive, but that make your life more enjoyable. This includes expenses related to vacations, hobbies, and entertainment, but also the more expensive or extravagant versions of your needs. You need food, but want to go to fancy or expensive restaurants. Similarly, you need clothes, but you don’t need the newest, trendiest clothes. It’s important to be honest when considering what expense is a need and what is a want, so you can effectively manage your expenses.

Balancing Income and Expenses

For a sustainable budget, your income needs to stay above your expenses. If not, you’ll have to borrow money or dip into savings to make ends meet. After covering your expenses, your extra income will ideally be saved for future goals and an emergency fund. In accounting terms, the balance between your income and expenses is often referred to as your cash flow. If you have a positive cash flow, your income is higher than your expenses. If you have a negative cash flow, your expenses are higher than your income.

While it may not work for everyone, the 50/30/20 rule can be a helpful place to start when considering a healthy budget. With this, your expenses take up 80% of your income, with 50% going toward needs and 30% going toward wants. The remaining 20% goes into savings. If that isn’t an option right now, there are a few changes you can make to bring your income and expenses closer to that goal (or at least closer to something sustainable), as outlined below.

Decrease your expenses

Cutting your expenses is generally the easiest way to get some control over an out-of-control budget. You’ll need to take a hard look at your spending and consider the areas where you can cut. Fixed expenses like debt or rent payments are much harder to change. But variable expenses, like your food or entertainment bill, are easier. This Coach can help you find areas that you can trim.

Increase your income

Increasing your income is another way to create a buffer between your income and expenses. One way to do this is to get a part-time or gig-economy-style job such as delivering food, driving for ride-share companies, or working late night shifts. Of course, this requires more of your time. Another option is to look for a new job that pays more and gives you room in your budget. That may require gaining new skills by taking classes or gaining certificates. Unfortunately, those things often cost money. But, if you can make the added expense work in your budget for a short time, it can pay off in the long term.

Managing your income and expenses is a lifelong process. As they change, your budget will need to change as well. It’s important to reevaluate it periodically to ensure that you’ve accommodated for any life changes.

Disclaimer

Whether you’re teaching finances to your kids, your grandkids, or those of a loved one, it’s absolutely essential to teach children how to manage the money they have and invest for the future.

Spending

An understanding of spending, including the ability to budget for and track it, is perhaps the most essential money skill you can teach to a child. Children need to recognize that purchases cost money and that money is in limited supply—they can’t just buy everything they want. They must plan ahead so that they can afford everything they need, and this is why a budget is a necessity. It’s important to acknowledge that budgeting always involves making adjustments. They shouldn’t expect to get it right the first time.

Spending Activities

Spending Simulation: For younger kids, you can simulate the experience of spending to teach them about tradeoffs. Give your child some money (maybe $5) and set up a small, at-home store. The store could include one item that will cost the whole $5, a few between $2 and $3, and multiple small things for $1 or less. These items can be small toys, treats, or even “coupons” for extra time playing games or a movie night. The point isn’t what they’re buying, but that the child recognizes that they can’t get everything—they’ll have to prioritize what they want most. Repeat the store every so often, perhaps with money they earn instead, to see how their understanding grows.

Expense Tracking: For older kids, help them track all of their spending for a week or month. They can do it on a piece of paper, a spreadsheet, or even an app. At the end of the tracking period, have them evaluate all of their choices. Did they spend more than they expected? Less? What would they like to change? Help them create a target for the next period and suggest ways they can improve. Repeat the process to see what changes. You may even offer a reward if your child is able to meet a goal you agree on.

Saving

It’s important for children to understand that saving is the secret to getting what they want. In order to do that, they need to recognize the difference between dumping money into an abstract savings fund and saving with a purpose. When it comes to the actual act of saving, teach that creating (and sticking to) goals is key. They may choose to save a regular percentage of their income or a certain amount each month. As an incentive to focus on saving, consider making a matching contribution by adding 50 cents for every dollar your child saves.

Saving Activities

Create a Savings Goal: Help your child set a saving goal. Children’s goals vary a ton based on their age, but might include toys, sports equipment, electronic devices, special clothes, or other big-ticket items. Let them discover for themselves that not all goals are worth the time and effort it takes to reach them. Once they’ve set a goal, create a clear way for them to track their progress. The more visible, the better. For example, a jar in the living room or a paper chain that you cut pieces off of for each milestone. This will remind them of their goal and give you both the chance to celebrate progress.

Open a Savings Account: Take a trip to your bank or credit union and help your child open their first savings account. You can even ask an expert at the financial institution to explain how interest works and why it’s wise to store your money in an account. Encourage your child to ask other questions about how financial institutions work. You may even choose to contribute a little to help get their fund started. But remember, the child needs to learn how important it is to regularly add money to the account. Interest won’t be enough on its own to reach their goals.

Investing

Investing is a powerful financial tool that everyone should understand. The sooner you start teaching your kids the basics, the better! Help your children understand that the goal is to buy when things are inexpensive and sell when they’re worth more. Investing is often done by buying stocks (very small parts of a company). The stocks are worth more when the company is doing well and less when the company is struggling. Since you own part of the company, you may also get payments when that company earns a lot of money. As the child gets older, you can touch on more complex aspects of investing.

Investing Activities

Track the Stock Market: Have your child pick a few brands that they like such as their favorite cereal, sports equipment, soft drink, or gaming company. Once they’ve picked two or three, go to the company websites or a general financial site and show them how to track the stocks. You can also point out news articles about the company and have them predict how that will affect their stocks. For example, if a sports drink company decides to stop producing a popular flavor, you can discuss how that may lead to a drop in their stocks. Track how the stocks change to see if your child’s guesses were right or wrong.

Start Investing: Get your child actively involved in investing by “selling” some of your shares to them. For example, if you’re planning to buy 200 shares of a particular company and you have two children, buy 202. Sell the extra shares to each child either at the price you paid or a discounted price if it’s too high. You can keep track of the children’s shares in a separate register so they can follow what happens and earn some money if the stocks do well. (Be willing to buy the shares back if they prove disappointing.)

Keep Teaching

These topics and activities are meant to help your child form a foundation of financial literacy. Once your child begins to master these topics, expand to others. You could teach about the 3 jar method, the 50/30/20 rule, and more! What’s most important is that you keep an open conversation with your child about money and the importance of managing it carefully.

Opening Accounts for Children

Most financial institutions offer a few accounts built specifically for minors. The most common options are:

Joint Bank Account: An account that you and your child own together. If you opt for a checking account, your child can get access to a debit card. This is a great way to get your child used to using a bank account for everyday purchases. If you decide on a savings account, your child can gain experience with saving and earning interest. Be aware that the child may be able to overdraft the account or incur fees.
Custodial Account: An account owned by the child but run by a parent or guardian. The guardian may withdraw money as needed for the child, but the child cannot access the account without them until they are 18 or 21, depending on the state. This account is a bit more complicated and comes with some strict rules. It’s usually best for long-term savings.
IRA: An IRA is a great way to teach your teens about saving for retirement while building a solid foundation for their future. The only requirement is that your child has earned income. Because that income will likely be relatively small, the best option will probably be a Roth IRA (the child pays taxes on their income now and doesn’t have to pay taxes when they withdraw at retirement). The contribution limit in 2024 is 100% of their earnings up to the max of $7,000.

Disclaimer While we hope you find this content useful, it is only intended to serve as a starting point. Your next step is to speak with a qualified, licensed professional who can provide advice tailored to your individual circumstances. Nothing in this article, nor in any associated resources, should be construed as financial or legal advice. Furthermore, while we have made good faith efforts to ensure that the information presented was correct as of the date the content was prepared, we are unable to guarantee that it remains accurate today.

Neither Banzai nor its sponsoring partners make any warranties or representations as to the accuracy, applicability, completeness, or suitability for any particular purpose of the information contained herein. Banzai and its sponsoring partners expressly disclaim any liability arising from the use or misuse of these materials and, by visiting this site, you agree to release Banzai and its sponsoring partners from any such liability. Do not rely upon the information provided in this content when making decisions regarding financial or legal matters without first consulting with a qualified, licensed professional

Getting Interested

With a savings account, you earn interest, or a percentage of your balance, on the money in your account. This means that your money is constantly growing. What you earn depends on the interest rate the bank pays—which varies by account type and is set by the bank based upon what other banks pay for similar accounts.

Regular Rules

The most basic accounts, where you can deposit and withdraw money at any time, are called regular savings accounts, or sometimes statement savings accounts. What that means is that any activity in the account—deposits, withdrawals, fees, or interest earnings—and your current balance are reported in a printed or online account statement, usually once a month.

You earn interest on a regular savings account only if you keep at least the minimum required amount in the account. If your balance is lower, some banks don’t pay interest and others may charge a fee for holding your money. The only way to avoid such penalties is to get an account without a required minimum or fall into a category that would allow it to be waived, such as being a full-time student or older than 65.

Isn’t It Interesting?

When banks advertise the interest rates on their savings accounts, they tell you the nominal rate and the annual percentage yield (APY). The nominal, or named rate, is the rate they pay. The APY is what you earn over the course of a year, expressed as a percentage of your principal.

The amount of money you actually earn depends on whether the account pays simple or compound interest. Simple interest is calculated annually on the amount you deposit. With compound interest, which can be paid daily, monthly, or quarterly, the interest is added to your principal to form a new base on which you earn the next round of interest.

How can you tell whether interest is simple or compound? If the nominal rate and the APY are the same, you’re earning simple interest. If the APY is higher, the interest is compound.

Disclaimer

There are many options for keeping your money safe and earning a little extra from interest. Like a savings account or CD, a money market account (MMA) is a way to earn interest on money that you deposit at a bank.

A Happy Medium

An MMA could be seen as a happy medium between a savings and checking account. That’s because an MMA offers the ease of a checking account and the earning potential of a savings account—in other words, high interest rates and accessibility. In fact, an MMA will usually offer higher interest rates than a typical savings account. This means that you can earn more in interest on the same amount of deposited money.

Higher Thresholds

To go along with a higher interest rate, an MMA will often require a bigger initial deposit when it’s opened. The minimum required balance, or amount of money that must remain in the account if you want to avoid fees, is also often higher. This can make it more difficult to open and maintain an MMA than a traditional savings account with a lower threshold.

Fun But Not a Fund

While they may have similar names, a money market account and a money market fund are not the same thing. A money market fund is a type of mutual fund, or a form of investment shared between multiple people. Investors purchase sections of the portfolio, or total amount, called shares. Money market funds generally focus on short-term, relatively low risk investments. But beware, unlike a money market account that functions like a savings account, it’s possible to lose the money you invest in a money market fund.

Disclaimer

For those without a retirement plan at work or those looking to maximize their retirement savings, an IRA provides an individualized saving option.

What Is an Individual Retirement Account?

An IRA (individual retirement account) is a retirement investment option available to anyone with earned income. You can open an IRA at most financial institutions, or through investment companies or brokerages. The funds invested in this account could either be overseen and managed by a brokerage house as a non-self-directed IRA or you can own and manage a broader range of assets yourself with a self-directed IRA.

Roth and Traditional

There are two main types of IRAs: Roth and Traditional. The main difference between the two is when you pay taxes. With a Roth IRA, you pay taxes on the money now and your investments grow tax-free. This means that when you withdraw the money in retirement, you won’t have to worry about paying any taxes.

With a traditional IRA, you won’t pay taxes until you withdraw the money in retirement. It’s likely that your tax bracket will change when you retire. If you move to a lower bracket, you’ll pay less in taxes than you would’ve now. If you move to a higher bracket, you’ll pay more. You also can’t know what tax rates will be when you retire, so it’s possible that they could be higher or lower than now, which means you’re taking a risk. The other benefit of a traditional IRA is that you may be able to deduct the money you contribute from your income in the year you contribute it, lowering the amount you’ll owe in taxes now.

The details of your eligibility for either type of account, how much you can contribute, and the deductions you can claim, are based mainly on your Modified Adjusted Gross Income, called your MAGI. Your MAGI is your income for the year without certain deductions you would take out for your AGI (adjusted gross income). This includes things like self-employment taxes, student loan interest, and more.

What are some advantages of an Individual Retirement Account?

Investing in an IRA allows you to have more control over how your money is invested. Not only that but both a Roth and a Traditional IRA include tax breaks either now or later.

Deductions

One major benefit of a traditional IRA is that you may claim a tax deduction for your contributions, lowering your tax bill now. Whether you can claim a deduction and how much is a bit complicated, so check these tables from the IRS for more specific details, but here’s a quick guide for 2024.

Filing Single

You are covered by a retirement plan at work:

MAGI of $77,000 or less: full deduction up to your contribution limit
MAGI of more than $77,000 but less than $87,000: partial deduction
MAGI of $83,000 or more: no deduction

You are not covered by a retirement plan at work:

Full deduction up to your contribution limit

Married Filing Jointly

You are covered by a retirement plan at work:

MAGI of $123,000 or less: full deduction up to your contribution limit
MAGI of more than $123,000 but less than $143,000: partial deduction
MAGI of $143,000 or more: no deduction

You are not covered by a retirement plan at work, but your spouse is:

MAGI of $230,000 or less: full deduction up to your contribution limit
MAGI of more than $230,000 but less than $240,000: partial deduction
MAGI of $240,000 or more: no deduction

You are not covered by a plan at work and neither is your spouse:

Full deduction up to your contribution limit

Eligibility & Contributions

The only requirement to open a traditional IRA is that you (or your spouse if you are filing taxes jointly) earned income. The requirements for a Roth IRA are a bit more complicated. Whether you can contribute, as well as the amount you can contribute, is based on your MAGI. You can make a full contribution if your MAGI for 2024 is less than $146,000 as a single filer and $230,000 as a joint filer. The amount you can contribute is reduced the more you make and phases out completely at $161,000 for single filers and $240,000 for joint filers.

No matter what type of IRA you choose, there’s a limit to how much you can contribute in one year. The total IRA contribution limit for 2024 is the lesser of $7,000 ($8,000 if you’re over 50) or your full earned income. This includes a traditional and Roth IRA. So, if you have both, ensure that the two combined don’t go over the cap.

Spousal IRA

If one spouse is working and one is not, the working spouse may contribute to a spousal IRA in the non-working spouse’s name. This allows the non-working spouse to grow their own retirement income that they own, rather than relying only on income their spouse owns. The contribution limits are the same for a spousal IRA, and the accounts do not count against one another, meaning each person can contribute (or have contributed for them) up to the maximum.

Withdrawals

Because contributions to a Roth IRA are already taxed, you can withdraw them at any time without a penalty. The only downside is that the money will then stop growing and, if spent, you can’t use it in retirement. Earnings on your contributions are a bit more complicated. If you withdraw those funds before age 59 ½ or before the account is at least 5 years old, you may need to pay income taxes on it and a 10% early withdrawal penalty. Roth IRAs do not have RMDs (required minimum distributions) until you pass away, meaning it’s entirely up to you how much you withdraw and when while in retirement. Once you pass away, your beneficiaries need to withdraw funds from your account at regular intervals.

Any withdrawals made from a traditional IRA, whether from contributions or earnings, before the age of 59 ½ are subject to taxes and the 10% penalty. Once you reach 59 ½, though, you can withdraw as much as you want without penalty. Just remember you’ll owe income taxes on everything you withdraw. Once you turn 73, you’ll need to start taking RMDs from a traditional IRA. Your RMD is calculated by the IRS, and you’ll be penalized if you miss it.

There are exceptions to the 10% penalties on early withdrawals from both a Roth and traditional IRA. This includes withdrawals made because you are terminally ill or withdrawals under $10,000 that are used in a qualified first-time home purchase. For a full list of exceptions, check out the IRS website.

Disclaimer

Interest is one of the most powerful tools in your financial arsenal and one of the more slippery dangers. It’s important that you understand how to make interest work in your favor.

How It Works

Interest is a way for a lump sum of money to grow, generally by a percentage of the total. This percentage is the interest rate. Interest can be earned or owed. When something earns interest, a percentage of the money is added to it at predetermined intervals. That interval could be daily, monthly, yearly, or anything in between. Owed interest really only applies when borrowing money. Rather than just paying back the exact amount that was borrowed, owing interest means borrowers pay back more. How much more depends on the type of interest and how it accrues.

Earning Interest

Earning interest is pretty straightforward. Let’s say you earn 5% interest on a $100 account. That means you’ll yield 5% (or $5 in this case) into that account each year. Interest is a great way to grow your savings without actively doing anything. And, since the most common way to earn interest is to keep your money in a federally insured account at a financial institution, you don’t risk losing money like you do in an investment. The drawback is that interest rates tend to be fairly low, so it’s likely you won’t earn as much as you would in a high-yield investment.

The most basic option for earning interest is a savings account, which is a safe place to store your money and make transfers to and from while earning a small amount of interest. CDs and share certificates, on the other hand, generally earn higher interest rates than regular savings accounts, but the money can only be withdrawn after a set date (called the maturity date).

When looking into these accounts, you’ll usually see an APY (annual percentage yield) associated with them, rather than or along with an interest rate. APY represents the percentage you’ll earn after compounding. The interest rate, on the other hand, is more basic and doesn’t consider all factors. Thus, the APY is more helpful and accurate when estimating how much you’ll earn in interest.

Paying Interest

To put it simply, interest increases the total that you pay back on borrowed money. For example, if you borrowed $100 with 5% interest, you would owe $105 back to the lender. But, just like when earning interest, things can get a bit more complicated when you take into consideration borrowing money over multiple years and fees that the lender charges for borrowing money. That’s why lenders generally express interest on borrowed money as an APR (annual percentage rate). Like an APY, the APR is a more complete picture of what you’ll actually owe. The specifics of how interest works on borrowed money depend on the lender, timeline, and type of interest.

With most loans, a section of your payment goes toward interest and a section goes toward paying back what you borrowed. When you pay more than your minimum, the extra money pays down what you owe, which can help you pay your loan back faster and owe less in interest overall. This is why you’ll owe more interest on the same amount of money with a longer loan than you do on a shorter loan because you are paying interest for longer.

With credit cards, you won’t owe interest unless you carry a balance over from month to month, which is why it’s important to fully pay off your credit card statement balance before the due date whenever you can. If interest begins to accrue, it compounds daily (more on that in a second). This means that the amount you owe goes up quickly, making credit cards a dangerous way to accumulate hard-to-overcome debt. Credit cards also tend to have higher interest rates, which means you’re paying back a lot relative to how much you borrowed.

Paying Interest

What is the difference between simple interest and compound interest?

The simplest form of interest is the aptly named simple interest. Simple interest earns or charges interest only on the original amount borrowed or deposited, called the principal. So, if you have $1,000 in a savings account that earns 10% simple interest, every year $100 is added to the account.

Then what is compound interest? Compound interest earns interest on the initial principal plus any earned interest. So, in the example above, the first year you earn $100 in interest. The next year, you earn 10% interest on the full account total—now $1,100. That is $110 in interest. The next year, you get 10% of the new total of $1,210, and so on. After 5 years, you end with a total of $1,610 from compound interest and only $1,500 with simple interest. You can see how compound interest helps the total grow exponentially faster than simple interest.

This idea works similarly when you owe money. With a simple interest loan, you’re only ever charged interest on the principal. As you reduce the principal with each payment, you owe less interest, simply because you owe less principal. With compound interest, you’re charged interest on the principal plus any accumulated interest.

While simple in theory, interest is one of the most powerful financial concepts when it comes to earning and owing money. It’s important to understand how to make interest work for you so that you don’t end up owing more than you expect.

Disclaimer

The Basics

You can get a certificate of deposit (CD) through almost any bank, while share certificates are available exclusively at credit unions. They are similar products. With both products, you essentially promise that you’ll leave a certain amount of money in an account for a specified amount of time. In exchange for not accessing the money during that period, the bank or credit union offers high interest rates on the deposited amount.

The length of a share certificate or CD can vary, but anywhere between six months and five years is common. There is usually a minimum required deposit—around $500 is typical. The money you deposit is referred to as the principal, the length of time you’re required to leave it in is the term, and the end date when you can withdraw the money without penalty is the date of maturity. The interest rate, and annual percentage yield determine how much you’ll make in interest off your initial deposit.

Cashing Out

When a CD or share certificate matures, you generally have a time limit to decide what to do with the money. If you take too long to decide what to do, the financial institution may roll over your money into another CD or share certificate for the same term at the current interest rate—this could be more or less than you expect. If you want to take the money out after the date of maturity, you can ask the bank or credit union to move the money into another account or send you a check. Some institutions have you designate an account when you open the CD, but offer flexibility to change if you decide to reinvest.

It is possible to access the money before the CD or share certificate matures, but if you do so, you’ll face penalties and fees. Consider a shorter term if you think you might need the money sooner than later.

Compound Interest

What you actually earn on your CD or share certificate is the yield— specifically the annual percentage yield (APY). There are two types of interest: simple and compound. Simple interest is paid only on the principal you initially invested. Compound interest adds in the money that has been earned. Good news: CDs and share certificates usually earn compound interest, so you’ll earn more money over time.

Benefits

CDs and share certificates can be a great tool for earning more interest than a typical savings account without tying your money up longer than needed or introducing risk. Here are a few more benefits of this type of product.

Higher yield than a regular checking or savings account
Choose the term that works for you
Interest rate is fixed for the full term
Stable despite any economic changes

Disclaimer