4-year CDs are a common length deposit account offered by many banks and other financial institutions. Four year cds can be a great investment for those wanting a low-risk (almost no risk) investment with a guaranteed return of interest income. This type of CD length is longer than many other lengths offered by banks, and will typically command a respectable interest rate.
How Do 4 Year CDs Work?
4 year CDs work like many other time deposit accounts. Potential investors should always take time to conduct market research to find out whether or not a CD is offering competitive rates on interest. Some banks may offer higher rates than others, so it definitely pays to shop around. Once an investor has located a bank, he or she must then open a deposit account with them. This typically involves filling out some basic paperwork (either online or in person).
Once the paperwork is completed, and the funds have been deposited, the CD will then begin to earn money over time. In most cases, the funds must be kept in the CD for the entire length of time (until maturity) in order to earn the full interest rate without facing penalty or fees.
4 Year CDs-Advantages of Investing in Four Year Certificate of Deposit Accounts
This type of CD length can have many advantages, including:
- Higher Interest Rates–Longer length CDs often include higher interest rates to entice investors to open the longer term accounts. Thus, by investing in a four year CD, you could make much more interest income compared to a shorter length CD.
- Secured Investment–As long as the investor chooses a bank with FDIC insurance (and meets the requirements of the FDIC), then the funds will be fully insured up to the covered amounts. This can give the investor peace of mind as compared to investing in uncertain “riskier” investments such as stocks, bonds, or mutual funds.
- Lock In High Rates Before They Go Down–Saavy investors who know how to guage the market can often invest in high rate CDs for long length of times right before the market goes into recession. Thus, they can earn guaranteed interest (at high rates) even during a bad economy, at which time CD rates often fall dramatically.
- Dividend Payments & Other Perks–Since banks usually encourage longer length investments, they may offer more favorable terms or perks for longer length terms such as 4 years. Some of these perks may include dividend “payments” each time interest is compounded or earned for the quarter. There may be other perks as well such as bump-up rates.
While there are plenty of clear benefits to investing in 4 year CDs, there are also a few disadvantages (like all investments). Some of these include:
- May Not Earn As Much as Other Investments–Other investments such as stocks, bonds, and mutual funds may offer a higher return. This always comes at a cost of more risk, however. So a CD, while guaranteed and insured, may not have a potential to offer a higher return on investment as other alternatives.
- Rates May Not Be Competitive in Recessions–CDs tend to offer low rates during times of economic difficulty. Therefore, investing in a low rate for 4 years may not be a wise investment strategy, and it may be more profitable paying down higher-interest debt (such as a mortgage or car loan), or investing in something that can offer a better return without adding significant risk.
- Funds Can’t Be Withdrawn Without Potential Penalty–4 years is a very long time for most people. During that time careers may change, health problems may arise, life-changing events may occur (such as marriages, having children, etc.), and it may not be the best timing for a CD of this length for certain individuals. In situations where people expect that they may need the funds before 4 years, they can always invest in a shorter length CD (and renew it as necessary).
4 Year CD Terms Conclusion
Four year certificate of deposit accounts can be a great investment for those looking long-term, with low risk, and guaranteed rate of return. It may not be a wise decision when rates are low, the investor expects that they may need the funds before maturity, or if they are willing to assume more risk for a potentially higher return. This can be a great way to put away money for a long length of time, without risking losing the funds.
Keep reading to learn more about CD lengths.