$1000 Growing in a Certificate of Deposit

One of the investments I decided to use for the Grow Your Dough Challenge was the Certificate of Deposit (CD). With the stock market volatility we have seen over the last few months, I wondered how a reliable, standard investment would do over time. I chose to use the CD as if it were the control group in the experiment. Lock that money away for 12 months where it is immune to the current environment and see if a safe investment is the better bet.

If you aren’t familiar with CDs, read this description; otherwise, skip ahead to the next paragraph. A CD is a way of saving money for a fixed period of time, at a preset interest rate. The term time can vary from 3, 6, or 9 months to 1, 2, 3, 5 years, for example. Interest rates typically increase as the term lengthens (though not always, I’ve seen a few exceptions). Your money is basically inaccessible during this term (you can withdraw it with a penalty) and you receive your money back along with the interest when the term ends. This money can than be used however you see fit or can automatically be rolled back over into another CD. Different institutions have varying rules about what happens at the end of the term, so make sure you read the fine print on the CD that you choose.

I used the Bankrate website to search for the best rates on a 1 year CD with a $1000 investment. The search yielded the following companies with the highest rates:

First Internet Bank of Indiana came up with the highest rate for a 1 year CD at 2.83% APY. However, I decided to go with the Capital One CD at 2.7% APY, because I already have a Capital One 360 account and I figured it would be easier and quicker to set up that account. It was, because much of the application form was autofilled from my information and I could transfer the money right out of my 360 account. I am also able to see the CD account alongside my 360 account when I log in online, which is convenient.

By the way, if you are interested in opening a Capital One 360 Savings, Checking, or Money Market Account, you can use my Refer a Friend link to receive a cash bonus in your account ($25 for $250 minimum deposit, other stipulations may apply depending on the type of account, see Capital One for more details). Unfortunately, the bonus payment is not valid on CDs. The savings account has a 1% interest rate and the Money Market is at 2% with balances over $10000 — better interest rates than you’ll usually find at your typical Main Street banks. Once you have your own account you can also refer your own friends and earn $20 per referral.