The basics of CDs.

Certificates of deposit and individual retirement accounts are great ways to maximize your earning potential. A Certificate of Deposit, more commonly known as a CD, is a type of time deposit offered by banks and credit unions. When you open a CD, you agree to deposit a certain amount of money for a fixed period – anywhere from a few months to several years.

The term "Certificate of Deposit" comes from the certificate that the bank gives you, which shows you’ve deposited a sum of money for a certain length of time. You can't withdraw money from your CD before the end of the term, called the "maturity date," without paying a penalty. But as a trade-off, CDs usually have better interest rates than standard savings accounts. CDs are generally considered best for short- to medium-term needs, such as saving for a vacation or a large purchase, since they mature within months or years.

How CDs Work

The interest rates on CDs are usually fixed, meaning you know upfront exactly how much you'll earn over the term of the CD.

This makes them an attractive option for conservative investors seeking stable, predictable returns. The interest you earn on a CD is usually compounded and added to the principal. The term lengths of CDs can vary widely. Generally, the longer the term, the higher the interest rate.

However, it's worth noting that withdrawing your money before the term ends typically results in an early withdrawal penalty, which could erode a significant part of your earnings. This encourages savers to let their money grow until the CD reaches its maturity date.

The basics of IRAs

An Individual Retirement Account is a type of investment account that helps our customers to save for retirement. It's similar to a 401(k) except, instead of going through your employer, you open an IRA and make contributions of your earned income on your own. However, you're limited in how much you can contribute to an IRA every year

The money you put in your IRA is invested in the market based on your selections of stocks, bonds, mutual funds and more, even including CDs. This can be aligned to your risk tolerance and investment style, whether conservative, aggressive or somewhere in between. Your IRA may have FDIC or NCUA insurance if it's held at a bank or credit union. But if it's held with an investment firm, protection may depend on the firm's membership with the Securities Investor Protection Corporation (SIPC).

IRAs are designed to discourage withdrawing from them until you turn 59½. Unless you meet certain exceptions, you face a penalty if you do. The trade-offs for this limited liquidity are the growth potential of the market and the particular tax advantages that come with IRAs. Traditional IRAs are tax-deferred until you withdraw money in retirement, and Roth IRAs, which are funded with post-tax dollars, offer you tax-free withdrawals in retirement.