30 month CDs can be a great option for investors looking for a steady return of money, without inviting unnecessary risk into their investment. Thirty month Cds (which is 2 1/2 years) may be the perfect time limit for investors transitioning in their life, and don’t want to tie up funds for too long, and yet want to get a higher rate on the CD compared to shorter lengths.
How Do 30 Month Certificate of Deposits (CDs) Work?
While 30 month Cds are fairly common, not all banks or financial institutions may offer 30 month CDs. CDs are often available in many different “lengths” (also sometimes called terms). Obviously shorter and longer terms will be better for different people, and each length has its own pros and cons.
To open a 30 month CD, investors should shop around online (and even locally) to determine the best rates for this time period. They should also be careful to review the bank’s CD terms and conditions, as well as make sure the financial institution offers CDs that are FDIC insured.
When you locate a bank, then you can open the certificate of deposit by filling out the necessary paperwork (online or in person), and then funding the account by writing a check or wiring the funds. You must then wait for the full 30 months for the CD to “mature,” after which time you may withdraw and access the principal and interest income you earned in that time.
30 Month CDs–Advantages of Investing in 30 Month Certificate of Deposit Accounts
Some of the benefits of opening a 30 month CD include:
- Higher Interest Rates–Banks offer higher interest rates on CDs that have longer lengths. Thus, a 30 month CD will typically have a much better rate than a 2 year, 1 year, or 6 month length. In fact, this could equate to as much as a full percentage point, which could equal thousands of dollars of difference depending on how much principal is invested.
- Funds Are Insured–As long as you select a bank that is FDIC insured, and you meet the guidelines for coverage, then you can rest assured that your CD investment is insured.
- Guaranteed Return–If you allow the time deposit to reach its full maturity, then you can know up front exactly how much interest income you can earn. This is great compared to uncertain investments like stocks or mutual funds.
- Favorable CD Terms–Banks prefer investors to use longer CD lengths when investing. Therefore, they generally not only offer better interest rates, but may include other perks to entice investors. Some of these may include “bump up” privledges, more frequent compounding of interest, and other terms.
30 Month CDs–Disadvantages of Investing in 30 Month Certificate of Deposits
Some of the disadvantages of investing in a 30 month CD include:
- Earnings are Taxed as Income–The interest income you earn will be taxable to the federal (and possibly state) level. This means your income must generally be delcared on most tax forms as interest income. The tax rate may be higher than other forms of investment, such as capital gains (stocks).
- Interest Rates for a 2.5 Year CD May Be Low–If you select a 30 month CD, you could be missing out on a slightly higher rate by investing in a longer term. A 3 year, 5 year, or 10 year CD may offer a higher rate.
- Other Investments May Be More Profitable. If the economy is in a recession, CD rates may be very low. Therefore, you could be missing out on much more lucrative investments by assuming more risk.
- You Can’t Access Funds Without Penalties–Most banks will charge penalties for early withdrawal of funds. 2.5 years can be a long time. After all, you may start a family, decide to move, lose a job, encounter a health problem, etc. during that time. So it is important to consider those things before investing.
Conclusion: 30 Month CDs Can Be a Great Investment
If you want to invest money into something that will offer a guaranteed return, is insured, and offers a competitive rate–then a 30 month CD may be right for you. Just keep in mind that there are other lengths available, and always shop around for different terms, lengths, and rates.
Keep reading to learn more about CD lengths.