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Understanding High-Yield CDs: A Smart Investment Choice

High-yield certificates of deposit (CDs) offer a higher interest rate compared to other savings accounts, making them an attractive option for those looking to grow their money with minimal risk. At O1ne Mortgage, we are here to help you navigate your mortgage-related needs. Call us at 213-732-3074 for expert advice.

What Is a High-Yield CD?

A high-yield CD is a type of deposit account where you invest a fixed sum of money for a specified period, ranging from a few months to several years. These CDs are available from banks, credit unions, and online banks. The key difference between a high-yield CD and a traditional CD is the higher annual percentage yield (APY) offered by the former.

How Does a High-Yield CD Work?

When you open a high-yield CD, you deposit a sum of money and choose a term length, such as one year, three years, or five years. This deposit earns interest over the term, and at the end of the period, you receive your initial deposit plus the accrued interest. Minimum deposit amounts can vary, but many are at or below $5,000, and some CDs have no minimum deposit requirement. Currently, high-yield CD APYs can exceed 4%, which is significantly higher than traditional CDs.

For example, if you deposit $1,000 into a 12-month high-yield CD with a 4.5% APY, you’ll earn $45 in interest. In contrast, a traditional CD with a 1.4% APY would yield just $14 in interest. Larger deposits, such as $25,000, would result in $1,125 in interest from a high-yield CD, compared to $425 from a traditional CD.

Be aware that withdrawing your money before the CD matures may incur a penalty, typically a few months’ worth of interest. However, some institutions may waive this penalty if the CD has been held for a minimum period.

High-Yield CD vs. High-Yield Savings Account

Both high-yield CDs and high-yield savings accounts are excellent options for saving money. The best choice depends on how long you can leave your money in the account. High-yield CDs often offer higher returns for longer terms, while high-yield savings accounts provide more flexibility for accessing your funds.

High-Yield CDs

• Fixed rate for the term length, beneficial if rates decrease
• APY depends on the institution and term length
• May have a minimum deposit requirement
• Early withdrawal may incur penalties

High-Yield Savings Accounts

• Variable rates that can change, beneficial if rates increase
• APY depends on the institution, interest compounding frequency, and account balance
• May have a minimum deposit requirement
• Generally allows more frequent access to funds

Get Your Money’s Worth

If you’re seeking a low-risk way to earn more interest and generate decent returns without needing immediate access to your funds, a high-yield CD might be the right choice. For any mortgage-related inquiries, don’t hesitate to contact O1ne Mortgage at 213-732-3074. We’re here to assist you with confidence and expertise.

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