7 year CDs are one of the longest CD terms offered by most banks, although some may offer as high as 10 years (or perhaps more in the future). Seven year CDs will command respectable interest rates in a good economy, and the rates will often be significantly higher as compared to shorter length CDs.
This term of deposit account is a great investment for those who want safe earnings of interest, their deposit to be fully insured, and they can afford to leave the funds untouched for the full length of time until the deposit reaches maturity.
How Do 7 Year CDs Work
7 year CDs work like any other CD deposit account. Investors must evaluate current market conditions to determine if investing in the full 7 year CD period is a wise investment. If so, then investors should shop around at local banks and online banks to determine the best terms and CD rates being offered. Once a bank or financial institution has been selected, the investor can open the lengthy deposit account by signing the necessary paperwork (online or offline), and then depositing the funds.
Once the funds have been deposited, they must mature for an entire 7 year period in order to earn the full interest yield stated in the terms.
Advantages and Benefits of 7 Year CDs
There are many benefits and advantages when investing in seven year certificates of deposit accounts. Some of these perks include:
- Highest Interest Rates–Seven year cds will typically command the highest interest rates of all other terms offered. The only exceptions is if a bank offers an even longer term (such as 10 year). Banks want to encourage lengthy investments, and therefore tend to offer better rates to entice investors.
- Dividend Payments–One interesting new feature many banks are offering are “dividend payments” on deposit accounts. They offer these most frequently on very long term deposit accounts (such as a 7 year CD). This allows the investor to receive the interest earnings at regular intervals (such as quarterly). Thus, the investor can enjoy the cashflow of interest earnings, while the principal funds remain invested.
- Lock In High Interest Rates–In a booming economy, a 7 year CD allows investors to “lock in” those high interest rates before they fall. Saavy investors who guage the market accurately can often invest in a long term CD right before a recession. Thus, they enjoy the high interest rates for the full seven years while they fall considerably. When interest rates are high, this is a great way guarantee competitive interest earnings.
- Bump-up Rates–Since banks understand that some investors may be hesitant about restricting their investment for a full 7 years, they now offer bump-up rates in many cases. This allows the investor to “bump up” the interest rate on the CD (usually only 1 or 2 times) during the investment. So should the rates rise during the investment, the investor won’t miss out on those increased rates.
- Safe & Insured Investment–As long as you choose a bank or financial institution that is FDIC insured (and you invest within the FDIC limits), then you can rest assured that the funs will be fully insured in the event of chaos. And since you will know before-hand what rate of return you will receive on the CD, you can know that your investment will produce the interest earnings you expect.
7 Year CDs: Disadvantages of Investing in 7 Year CDs
While there are many benefits to investing in a 7 year CD, there are also some disadvantages as well.
- Low Interest Rates–During economic recessions (and other events), CD rates may collapse and be at very low levels. Thus, this will often deter investors from wanting to invest in a CD for such a long length, especially with such a poor return on investment.
- Restricted Funds–Investing for 7 years means you will not be able to access the principal amount until the full maturity (at least, not without a likely penalty or fee). A lot of things can happen in 7 years. You may become ill, perhaps get married, lose a job, or face other financial challenges. Therefore, 7 years may not be the best length of time for all individuals–especially at certain stages in life.
- Alternative Investments May Be More Profitable–Over the length of the full seven years, other investments (such as stocks, bonds, or mutual funds) may offer a higher return on investment. This comes at a price, however, in the form of more risk. But stocks can and often do out-perform CDs. But at least with a CD you know your funds are nearly guaranteed.
- Minimum Investment Required–Some banks may require a minimum investment for this length–ranging from a few hundred to several thousand. Thus, not all investors will approved for this length.
7 Year CDs: Conclusion
A seven year CD can be a wonderful investment opportunity. This is great for those wanting to spread out their portfolio to include more “safe” investments. It is also great for those wanting their funds FDIC insured, a set rate of return (interest rate), and won’t need to access the pricipal for the full length.
On the other hand, this certainly isn’t the best investment for everyone. Especially those who may not be investing enough funds to meet minimun requirements, and those who may not want to invest for such a long period of time.
Keep reading to learn more about CD lengths.