What’s the Difference Between ACH and Wire Transfers?
Our money moves mostly via ACH and wire transfers, but there are some major differences between them, especially when it comes to speed and security. We’ve got it all explained!
What is a CD And How Do They Work?
What Is a Certificate of Deposit And How Do They Work?
With so many financial products available, choosing which type of account to open can be just as stressful as deciding where to open one. For consumers looking for earnings on their savings, one of the options that AGCU offers is share certificates. Here’s a brief overview of how they work and some of their advantages and disadvantages.
Jump To:
- How CDs Work
- How Terms, Minimum Balances and Rates Interact
- Compounding interest: Interest Rate vs. APY
- Choosing a CD
- Building a CD Ladder
- Combining CDs With Other Accounts
A certificate of deposit (CD) is a low-risk savings tool that can boost the amount you earn in interest while keeping your money invested in a relatively safe way.
Like savings accounts, CDs are considered low risk because they are FDIC-insured up to $250,000. However, CDs generally allow your savings to grow at a faster rate than they would in a savings account.
How CDs Work
In exchange for depositing your money into a bank for a fixed period (usually called the term or duration), the bank pays a fixed interest rate that’s typically higher than the rates offered on savings accounts. When the term is up (or when the CD matures), you get back the money you deposited (the principal) plus any interest that has accrued.
If you need to access your funds before the CD’s term ends, you are subject to an early withdrawal penalty, which can significantly reduce the interest you earned on the CD.
Tip: Before opening a CD, make sure you have an emergency fund—a comfortable amount of savings in an easily accessible account, such as a savings account.
How Terms, Minimum Balances and Rates Interact
CDs come in varying terms and may require different minimum balances. The rate you earn typically varies by the term and how much money is in the account. In general, the longer the term and the more money you deposit, the higher the rate you are offered. (A longer term does not necessarily require a larger minimum balance.)
Compounding interest: Interest Rate vs. APY
Like savings accounts, CDs earn compound interest—meaning that periodically, the interest you earn is added to your principal. Then that new total amount earns interest of its own, and so on.
Because of the compound interest, it is important to understand the difference between interest rate and annual percentage yield (APY). The interest rate represents the fixed interest rate you receive, while APY refers to the amount you earn in one year, taking compound interest into account.
Choosing the Right CD For You
There are a number of factors to consider when choosing a CD. First, when do you need the money? If you need it soon, consider a CD with a shorter term. But if you’re saving for something five years down the line, a CD with a longer term and higher rate may be more beneficial. Check CD Rates Here
Also, consider the economic environment. If it seems that interest rates may rise, or if you want to open multiple CDs, CD laddering can be a good option.
Building a CD Ladder
Overall interest rates may change during your CD’s term. If rates rise, you miss out on earning those higher rates, since your money is committed for the CD’s term. However, if rates go down, you benefit: You still earn the higher rate that was offered when you opened the CD. CD laddering, buying multiple CDs of varying term lengths, can help address this concern.
It can also be a way for you to take advantage of longer terms (and therefore higher interest rates) while still giving you access to some of your money each year.
With a CD ladder, you divide your initial investment into equal parts and invest each portion in a CD that matures every year. For example, say Leo has $10,000. To build a CD ladder, he invests $2,000 each in a 1-year, 2-year, 3-year, 4-year and 5-year CD. As each CD matures, he reinvests the money at the current interest rate or uses the cash for another purpose. If Leo reinvests his money, he might choose a new 5-year CD, which would ensure he has one CD maturing each year as long as he continues laddering.
Combining CDs With Other Accounts
Be sure to consider other options for saving or investing your funds. Diverse accounts offer different levels of risk and return. Learn about AGCU CD Rates and get started today!
Call 866-508-2428 or start a video banking call today!
7 Money Habits that Can Boost Your Credit Score
Wanna Know 7 Secrets for a Higher Credit Score?
Time to Read: 3 minutes
Having a good credit score can open doors to so many financial opportunities, like lower interest rates on auto loans, the chance to buy a house, and more credit opportunities. And while boosting your credit score may seem like a tough task, it’s doable if you know how to go about it. Here are some simple steps that can help you improve your credit score in no time!
Check Your Credit Report First!
Knowing the state of your credit score begins with checking your credit report, which is a record of your credit history that contains details about your credit accounts, payment history, and debts. You can get a free credit report from each of the three main credit bureaus (Equifax, Experian, and TransUnion) once a year. Give your report a careful look and dispute any errors you find with the credit bureau.
Always Make Timely Payments!
Your payment history is a big factor that impacts your credit score, so don’t be late or miss payments. According to Wells Fargo, payment history makes up 35% of your FICO credit score – that’s a big deal! So, it’s definitely a good idea to set up auto payments for your bills and work on paying off past debts to avoid future late payments.
Try and Cut Down on Credit Utilization
Your credit utilization, or the amount of credit you use compared to your credit limit, is another key factor that affects your credit score. Keep your utilization low (under 30% according to Experian) by paying off your credit card balances in full each month and only using your card when you need to. If you have high credit card balances, consider consolidating with a personal loan or balance transfer credit card.
Your Old Accounts Should Stay Open!
The longer your credit history, the better your credit score, so try to keep old credit accounts open and in good standing. According to CreditKarma, the age of your credit history generally accounts for 15% of your total credit scores. A good rule-of-thumb is to think twice before closing an old account, no matter what it is, because it could hurt your credit score if you’re not careful.
For example, many young adults these days begin their credit history when they take out student loans in their late teens/early 20s. If you are planning on paying off your student loans in a shorter period of time (less than 5 years), you may want to consider getting another line of credit going so that you don’t see your credit score drop suddenly (according to Transunion) once you pay off your longest credit history item.
Limit New Credit Apps
Every time you apply for new credit, like a personal loan or a vehicle loan, it shows up as a hard inquiry on your credit report, which can lower your credit score. While new credit apps only account for 10% of your FICO credit score, according to Bankrate, apply for credit when you need it and avoid opening too many new accounts in a short period of time.
Try Out a Secured Credit Card Option
If your credit score isn’t looking so good, a secured credit card can help big time. This type of card requires a cash deposit, which becomes your actual credit limit. Use the card responsibly by making on-time payments like you would with a regular credit card.
Make sure to follow standard principles, like keeping your utilization low, and over time you can build a good credit history and improve your score. This option definitely poses the least amount of risk to those who have poor spending habits!
Seek Help from a Credit Counselor
If you’re struggling with debt and your credit score is suffering, a credit counselor can help. They can help you create a budget, reduce debt, and improve your credit score. There are many reputable credit counseling agencies that offer free or low-cost services, so do your research and find one that works for you.
Keep a Healthy Debt-to-Income Ratio!
According to the Consumer Financial Protection Bureau, your debt-to-income ratio, or the amount of debt you have compared to your income, is another factor that affects your credit score.
Keep your ratio low (According to Experian, many lenders prefer ratios below 36%) by reducing debt and increasing income, and consider consolidating your debt with a personal loan or balance transfer credit card.
Wrapping Up How to Boost Your Credit Score:
Great credit scores can open up a world of financial opportunities, from lower interest rates on loans to buying a house. But don’t worry, boosting your credit score is easier than it seems!
Start by checking your credit report and disputing any errors. Making timely payments, reducing credit utilization, keeping old accounts open, limiting new credit apps, and getting a secured credit card can also help move the needle in the right direction.
If you’re struggling with debt, seek help from a credit counselor or keep a healthy debt-to-income ratio. So, take control of your finances and show your credit score who’s boss!
