A certificate of deposit (CD) is a handy investment option for those who want a low-risk way to earn on their savings. Regular savings accounts can be commonly preferred; however, CDs also offer a stable source of income for years. Although opening a CD is relatively easy, one must steer clear of lapses that prevent them from getting the most out of their investment. So, here are some mistakes to avoid while opening a CD:

1. Not diversifying investments
One should never place all their eggs in one basket when it comes to investing money. Here, placing one’s entire life savings into a single CD may not be as risky as, say, using that money to invest in shares. CDs are a relatively stable and safe investment, but they do not allow wealth to grow exponentially over time. So, one needs to diversify their investment portfolio by exploring various avenues, like stocks, bonds, gold, and real estate, among others. A diverse portfolio of investments can help generate greater wealth in the long run.

2. Choosing extremely lengthy terms
Investors can opt to keep their money in a CD for six months, 12 months, 2 years, or 5 years. Some banks may offer even more options. However, choosing the longest duration for a CD might not be worthwhile, as the interest rates can change over time. So, one should keep all options open and take advantage of the new investments and their corresponding high interest rates. The interest rates banks will offer on CDs two years from now may be higher than what they offer today. So, if one chooses an exceptionally long term, they may miss out on the opportunity to earn more interest on their savings.

3. Not exploring all options
At times, one may go with the first CD option and avoid looking further, especially if they are familiar with the banks or financial institutions providing CDs. However, by doing so, one is probably missing out on better interest rates and offers that other institutions might provide. So, one must explore all the options available to them before choosing the best one. Further, one can even consider online banks while planning to open FDs or CDs, as these banks may offer higher interest on savings.

4. Overlooking early withdrawal penalties
Opening a CD is like locking away a chunk of money for several years. Life is unpredictable, so one may want to withdraw the money as the need arises. However, banks can charge a heavy penalty for withdrawing money from a CD before its maturity date. To avoid incurring such charges in the future, one must read the fine print, i.e., carefully review the terms and conditions and the bank’s policy on early withdrawal before signing up for a CD. This way, one can avoid unwanted surprises in the future.

In addition to avoiding the abovementioned mistakes, one must do some research before investing. Looking up the pros and cons of each available option can help one determine which savings tool aligns with their financial goals.