For some reason, certificates of deposit—also known as CDs--seem to have more myths surrounding them than other types of accounts. Maybe it’s because you can’t withdraw your money as easily as you would a savings account, or maybe it’s because you can only open one with the help of a member advisor. Maybe it’s just because no one’s sure if they get a certificate or not.

Regardless of why, it’s high time to tackle these certificate of deposit myths head on. The more you know about what CDs can and can’t do, the better equipped you’ll be to determine if a CD is the best option for your savings.

What is a certificate of deposit myth that’s not true?

Myth 1: CDs Aren’t Profitable

While a CD has a higher interest rate than a traditional savings account, it’s understandable that people might not be impressed when they see that the “high interest rate” usually hovers around 1-2%. Invest $1,000, in other words, and at most you’ll get $20. This can lead people to thinking that it’s better if they invest their money in accounts that give a better return.

It is true that CDs aren’t glamorous, and you won’t get as much money if you, say, happen to pick an individual stock that explodes. What CDs lack in glamor, though, they make up for in reliability. Your earnings are set in stone when you open the CD account, and you never have to worry about a CD depreciating in value, unlike individual stocks and mutual funds.

Find out how profitable a CD can be!

Myth 2: There’s only one Type of CD

In one sense, this statement is true. After all, every CD account has similar features. However, you can also select the term of your CDs, and the term you select for a CD will not just affect how long your money is in the account—it will also affect the interest rate you get.

It’s worth mentioning that different credit unions and banks also have different features on their CDs, including:

• Minimum deposit rates
• Variable interest rates
• Ways to avoid withdrawal penalties

Trying to list all the different ways credit unions and banks structure certificates of deposit would fill up hundreds of pages. Your best bet is to visit a credit union or bank’s website or talk with a member advisor to discover the way they’ve set up their CD accounts.

Myth 3: CDs Tie up Your Money for Too Long

As previously mentioned, when you open a CD, you get to choose the term, or how many months the CD will be open before it matures and you can access your money. That means you can pick a term that matches your comfort level.

However, when people are afraid that a CD will tie up their money for too long, what they’re really worried about is not being able to access that money if they have an emergency. That’s a valid concern, and the answer is that you should only open a CD with money you won’t need for awhile.

The best example of this is money you’ve set aside for a future financial goal, like a summer vacation or a wedding. You’re not planning on spending any of that money until the vacation hits, so why not put it in account that will earn more interest? You can even set up a CD ladder strategy to help maximize the access to your money while still getting a high interest rate.

Myth 4: CDs are Only for People With a Lot of Money

It is true that certificates of deposit have a higher minimum deposit requirement than traditional savings accounts. However, the requirements aren’t exorbitant. At First Alliance Credit Union, for instance, you only need $500 to open a CD account. Most people will have more than that if they’ve been regularly saving money for a year.

Admittedly, the more money you put into a CD, the more growth you’ll get, but even if you put the minimum amount into a CD you’ll still see more of a return on interest than you’d get from a traditional savings account.

Speaking of which…

Myth 5: CDs Aren’t as Good as Savings Accounts

A lot of people feel that you should stay away from CDs and just stick with a traditional savings account. Their reasoning is that savings accounts don’t tie up your money for months and months, and that while you won’t get the interest rate you would from a CD, you at least won’t be stuck if you need that money due to a financial emergency.

The fact of the matter is that CDs are better than savings accounts in some respects and not as good in others, and you should at least consider whether the features of a CD can help you in your overall financial strategy. You shouldn’t put all the money in your savings account into a CD, but you very well might want to put the money you’ve saved for a financial goal into a CD to take advantage of the interest rate while you’re saving up the rest of the money for your goal. You might even want to put part of your emergency fund into a CD while keeping the rest available in case an emergency arises.

Got questions about certificates of deposit? Ask us! 

Experience the Truth About CDs at First Alliance Credit Union

For some reason, CDs seem to be prone to myths and misconceptions. People think you need to be rich to open a CD, that a CD isn’t profitable or that CDs tie up your money for too long. Once you know more about CDs, though, you’ll find that they have advantages and disadvantages, just like every other type of checking account and savings account, and that in some situations they can play a vital role in your overall financial strategy.

If you’d like to find out what CDs can and can’t do first-hand, become a First Alliance Credit Union member today. You can talk with a member advisor about opening a CD, as well as what term would work best for your financial goals. All you need is five dollars to open a savings account, and you can even use our online banking platform and mobile app to track the interest that your CD earns from month to month.