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Given the current high-rate environment, this is a great time to take advantage of what interest-bearing accounts offer to savers. And while you have a range of to choose from — like money market accounts, high-yield savings accounts and certificates of deposit (CDs) — CD accounts are a particularly smart bet right now.

That’s because, unlike regular or high-yield savings accounts, CDs offer fixed rates for the full duration of your CD term. What that means is when you open a CD account, you lock in your rate and are guaranteed to earn it until your CD matures. That can be a pretty alluring perk in an uncertain rate environment, like what we’re experiencing now.

But while it can make a lot of sense to add a CD account to your investment portfolio to gain stability and predictable returns, CDs still require careful consideration to ensure you maximize their benefits. 

Learn more about the top CD rates you could earn today.

5 big CD mistakes to avoid this spring

Be sure to avoid these five big CD mistakes this spring:

Neglecting to shop around for better rates

One of the most common mistakes people make when investing in CDs is opening one with their current bank or credit union rather than taking the time to shop around for the best interest rates. But interest rates can vary significantly among financial institutions, and settling for the first offer you come across may result in missed opportunities for higher returns. 

This spring, dedicate some time to researching different banks, credit unions and online financial institutions to find the most competitive CD rates. Online financial institutions, in particular, tend to offer more attractive rates than traditional brick-and-mortar banks, so don’t hesitate to explore various options to maximize your earnings.

Find out more about your best CD options online now.

Ignoring the impact of inflation

While CDs can provide a safe and stable investment, it’s crucial to consider the impact of inflation on your returns. If the interest rate on your CD is lower than the inflation rate, your purchasing power may erode over time. And, that’s especially important to pay attention to right now, as persistent inflation is still impacting the economy — and the value of paper currency.

The latest inflation report showed that the inflation rate for January was 3.1%, which is lower than it was in 2022 but still higher than the target rate of 2%. And, it’s unclear where the inflation rate may head, considering that the last couple of inflation reports have shown inflation tick back up unexpectedly.

In turn, it’s wise to choose a CD with an interest rate that at least keeps pace with the current rate of inflation. Luckily, many CD options offer rates that surpass today’s inflation rate, so, if necessary, you can use this opportunity to both invest in new CDs with top rates and reallocate your investments to better protect your money from the eroding effects of inflation.

Overlooking early withdrawal penalties

Life is unpredictable, and unexpected financial needs may arise, making it tempting to dip into your CD before its maturity date. However, doing so often means that you’re incurring early withdrawal penalties, which can significantly eat into your earnings. 

So before committing to a CD, carefully review the terms and conditions, paying special attention to the penalties associated with early withdrawals. And, if you’re particularly concerned about the potential need to access your money before your CD matures, there are some CD accounts with no early withdrawal penalties — so it could make sense to consider one of those. 

Spring is also a great time to review your emergency fund and ensure it’s robust enough to cover unforeseen expenses. And that, in turn, would help to reduce the likelihood of needing to prematurely access your CD funds and paying penalties to do so.

Failing to diversify your CD portfolio

While CDs are a low-risk investment, relying solely on these accounts can limit your overall portfolio’s growth potential. Diversification is a key principle in investment strategy, and spring is an ideal time to assess your current asset allocation. 

Consider diversifying your investment portfolio by including a mix of CDs with different maturities, as well as exploring other investment options, such as stocks or bonds. Diversification helps spread risk and enhances the potential for higher returns, providing a more resilient financial foundation.

Forgetting to reinvest or roll over the proceeds after maturity

As your CDs approach maturity, it’s essential to have a plan in place for the funds. One common mistake is forgetting to reinvest or roll over the proceeds into a new CD. Failing to do so may result in missed opportunities for continued growth. 

So, take advantage of the spring season to review the maturity dates of your existing CDs and develop a strategy for reinvesting or rolling over funds. Consider the prevailing interest rates and your financial goals when deciding on the duration of the new CD.

The bottom line

Avoiding these common CD mistakes this spring can help you make informed decisions, protect your wealth and set the stage for financial success. By taking the time to shop around while considering inflation, being mindful of penalties, diversifying your portfolio and planning for CD maturity, you can make the most of your CD investments and cultivate a financially secure future.