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5 common mistakes to avoid while opening a CD

5 common mistakes to avoid while opening a CD

A certificate of Deposit or CD is a type of savings account option that many explore for financial security. CDs are known for their guaranteed and stable returns, making them a great investment for those who want to play it safe. Banks and credit unions offer them for a specified maturity period at interest rates. However, one can make some rookie mistakes when dabbling in such an investment. One can avoid these pitfalls while opening a CD.

Opening fee-based account
Banks often need one to have a checking account before applying for a CD. However, these banks also have a cost associated with opening a checking account. According to statistics from 2022, the national average return rate of CDs ranges from 0.03% to 0.39%. However, CD rates keep changing, and some banks are providing even 5% APY as of October 2023.

A fee-based account can reduce the returns extensively. For instance, if one takes the national average return rate, say Chase Total Checking, which charges a monthly fee of $12, one may end up paying more in fees than one might earn in returns. To avoid this, ask the representative of the bank if there is a minimum deposit requirement that can help you waive the fee. This way, one can save more money and gain returns.

Neglecting to shop around
Most amateur investors who are new to the CD savings method do not compare rates that are available for CDs. According to some reports, the best rates are available with various banks depending on the investment’s tenure. The higher the investing period, the higher the return. Therefore, it is advised to keep looking for different rates across the market. Ask for referrals, read reviews, and compare rates among banks, credit unions, or other credible financial institutions. This way, one can choose the competitive rate and meet the personal financial goals. Some of the options include:

  • Total Direct Bank – Three to six months
  • Credit Human – 1 year to 18 months 
  • Newtek Bank – 2 years
  • Luana Savings Bank – 3 years 
  • Wellby Financial – 4 years 
  • Farmers Insurance Federal Credit Union – 5 years 
  • Apple Federation Credit Union – 10 years

When it comes to opening a new account, here are some of the best rates available as of October 2023 for investors.

  • CIT Bank offers an Annual Percentage Yield( APY) of 5% and a minimum $1,000 deposit. There are no account opening fees; it’s a six-month CD investment, and there is daily compounding interest.
  • BARCLAYS offers 5.50% APY for 12 months with zero minimum deposit. 
  • American Express National Bank asks for a minimum of $1 and 5% APY. There are no fees, and customers can use the 24/7 post-sale service to clear any concerns or queries.
  • Discover requires a minimum deposit of $2,500, with an APY of 4%. Its investment plan has a duration of five years, and there are no monthly fees, which can result in significant savings. Investors can also lock in their CD rate to guarantee their returns.

Opening long-term CDs during rate hike
When interest rates are on the rise, it may not be the best time to invest in a long-term CD. This is because if an investor locks in an interest rate of, say, 0.50% APY, and in a couple of months, the interest rate increases to 0.75%, they miss out on the opportunity to earn that extra 0.25%. Therefore, experts advise that when rates are increasing, it is better to opt for short-term CDs rather than long-term ones.

Opening a CD when in debt
Many people may consider opening a CD account as a quick fix to pay off their debt. However, this approach may not be the best financial choice. If the interest rate on the existing debt is higher than the interest rate the CD can earn, then it might not be a sound decision to open a CD. Before making any financial decisions, it is best to calculate and compare the potential benefits of different options to pay off the debt as quickly as possible.

Overlooking early withdrawal penalties
Always check for terms and conditions before investing in a CD. This saving method has a maturity withdrawal period, and in many cases, there are penalties for early withdrawal if the CD is set to a particular tenure. These penalties may vary from one bank to another, so it is imperative to read the fine print or speak to the sales executive in detail about any uncertainties.

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If you think prepaid debit cards have no value, you might want to reassess your theory and catch up with this smart budgeting tool. Prepaid cards can save you from overspending and help you budget without much hassle. You also won't have to worry much about transaction fraud or losing millions from the account in case of theft. That's not all. A prepaid debit card can come in handy in many other situations too. Easier money management Prepaid debit cards are an effective tool to curb unnecessary expenses. If you cannot help but go a little crazy on your retail therapy spree, this card might be the perfect solution. Once you load your card with a certain amount, you know without a doubt that there's no extra spending you can indulge in. Since the card encourages people to manage their money well, many have opted for it as a go-to payment method. Help with business budgeting If you're bad at tracking how much you spend or often fail to meet business expenses without spending out of pocket, prepaid debit cards can help organize your finances. Getting a prepaid card for business expenses means you no longer have to worry about either spending your personal cash or going over budget with business spending. At the same time, you can communally use the card for your startup without having to remind the team members to stay within spending limits. Reliable travel buddy One of the top reasons to invest in a prepaid debit card is that it makes for a nifty travel companion. Want to spend a weekend out of town partaking in adventures? Headed on a long vacation to another country? A prepaid debit card is an answer to your money-carrying concerns. Most prepaid or reloaded cards are accepted in various countries at payment points and ATMs. Some even offer payment options in local currency and USD. No account necessary Another great benefit of getting a prepaid debit card is that you might not need to sign up with a credit union or open a bank account. This is especially useful for people who don't want to go through the hassle of managing an additional account or already have to take care of a checking account. Since there's no bank account, prepaid cards provide the convenience of paying in plastic without bothering about the bank's processing fees. Moreover, you might be surprised to find out that transactions via certain prepaid cards cost less than bank debit cards! Besides providing the above benefits, prepaid cards are a fantastic source of rewards and rebates. Some even let you convert your rewards to cash, further contributing to your savings. But it's crucial to choose the right card. Some top prepaid debit card options you might want to look at are: Netspend® Visa® Prepaid Debit Card The Netspend® Visa® Prepaid Card works like any other traditional card, except it isn't linked to a bank account. If a poor credit history is in your way of getting a checking account, this might be the solution to your problems. By getting a Netspend® Visa® or Mastercard® prepaid card, you can access all banking features in the same place without hassle. In addition, you can load up $1,000 or more cyclically on the card without paying a monthly fee. Bluebird® American Express® Prepaid Debit With a monthly fee of $0 and free withdrawals from in-network ATMs, the Bluebird® card is among the sought-after prepaid debit cards. The cash loading limit for temporary cards starts from $1 and goes up to $500; however, when your card is activated, your reload limits range from $20-$1,999. In addition to these benefits, American Express® users can reload their cards a couple of days earlier than the originally scheduled date. Greenlight Debit Card With no ATM fee or reload fee, the Greenlight Debit Card is a great choice for parents looking to hand over the card to their kids. The card even comes with its own range of money management lessons to help children learn about responsible spending and saving behavior. However, you will have to shell out some money to pay the monthly fees, and it can't be reloaded with cash. Many banks offer cash cards as an alternative to debit cards. Cash cards can be used at ATMs to withdraw money, but unlike other prepaid debit cards, you won't be able to make payments in most cases.

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A credit score is a number between 300 and 850 that records one’s creditworthiness. Those with higher credit scores are more likely to receive loan approval and reduced interest rates. This score is based on one’s credit history, drawn from factors such as the total number of accounts in their name, types of loans, length of credit history, debt utilization, etc. Several credit-building apps have emerged on the market to help people improve their credit scores. How credit-building apps work Credit-building apps tend to offer three distinct services. These are as follows: 1. Credit monitoring With major credit bureaus, there are restrictions on how often one can access their credit score. However, some apps offer credit monitoring services to allow one to check their score daily, weekly, or monthly. They also offer tips and suggestions for how to improve one’s score. Lastly, they also monitor activity on one’s accounts, sending alerts for any new accounts or suspicious activity that may occur. 2. Credit building lenders Some apps also offer credit-building loans. As the name suggests, these are meant to help build one’s credit score. Since one makes regular payments in a short period of time, these loans can significantly improve one’s credit score. 3. Credit reporting Several apps also help boost credit scores by reporting alternative payment data. Since these payments (such as rent or utilities) are not considered in traditional credit reports, they may help improve credit scores.Top credit-building apps to use Here are some top apps to use to boost one’s credit score: 1. Experian Boost Hosted by the credit bureau Experian, this app is ideal for those with a history of rent and utility payments. It works on the premise of credit reporting, including alternative payments that aren’t usually reflected in one’s credit score. To use this, one only needs to sign up, link their payment accounts, and choose their positive payments to be reported. While it may not be able to fix poor credit, it is a great, inexpensive way of boosting one’s score instantly. 2. SeedFi Those who do not have any credit or borrowing history must try using SeedFi to boost their credit scores. This app offers lender services, with interest-free loans beginning at as little as $10. Users can pay this loan back within the payment cycle. SeedFi then reports this positive payment to credit bureaus, helping improve credit scores. Additionally, this service is free to use, helping first-timers build their credit without breaking the bank. SeedFi also offers Borrow and Grow loans, which offer users cash immediately upon approval. This loan includes a sum that goes into a savings account. Once the loan is paid off, users access this account, effectively acting as an emergency fund. However, this service typically has high interest rates (12.96-29.99%), which could prove costly over time. 3. KikOff KikOff is ideal for those looking to make small monthly payments. According to experts, this service can help users improve their credit score by 58 points. Sign-up on KickOff does not require a credit check. With their credit account, users are offered a small line of credit ($750 per month) to make purchases from the KikOff store. Users can pay these back in the form of small monthly payments to help boost their credit score. The account has a $5 monthly fee that is part of the credit line. This helps one build credit, even if they do not borrow anything else. Additionally, the service does not have associated interest charges or late fees, letting one focus on covering the principal amount easily. 4. CreditSesame CreditSesame is a great option for those looking for a credit reporting app. This free service also offers personalized advice to help users improve their financial standing and boost their credit scores. It operates by recording and reporting a portion of one’s payments to the major credit bureaus. This evidence of on-time payments helps improve one’s credit scores. The app also offers cash rewards for services one avails themselves of on their platform. Users can also avail themselves of a free checking account and a new debit card linked to it for improved cash rewards on the app. Credit scores can have a significant effect on one’s life. They are used to determine one’s reliability by prospective employers and to decide interest rates and approvals on loans, credit cards, mortgages, etc. by lenders. Using the credit-building apps mentioned above can help people improve their scores and establish sound financial footing for the future.

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