What's the benefit of opening a Certificate of Deposit (CD) Account?
"If you've already got emergency savings sufficient for your needs, I agree that you'd be better served by sending that $500 to your student loan(s). I, personally, house the bulk of my emergency savings in CDs because I'm not planning to touch it and it yields a little better than a vanilla savings account. To address the comment about liquidity.  In addition to my emergency savings I keep plain vanilla savings accounts for miscellaenous sudden expenses.  To me ""emergency"" means lost job, not new water pump for my car; I have other budgeted savings for that but would spend it on a credit card and reimburse myself anyway so liquidity there isn't even that important.   The 18 month CDs I use are barely less liquid than vanilla savings and the penalty is just a couple months of the accrued interest.  When you compare a possible early distribution penalty against the years of increased yield you're likely to come out ahead after years of never touching your emergency savings, unless you're budgeted such that a car insurance deductible is an emergency expense. Emergency funds should be guaranteed and non-volatile.  If I lose my job, 90 days of accrued interest isn't a hindrance to breaking open some of my CDs, and the process isn't so daunting that I'd meaningfully harm my finances. Liquidity in 2017 and liquidity in whatever year a text book was initially written are two totally different animals.  My ""very illiquid"" brokerage account funds are only one transaction and 3 settlement days less liquid than my ""very liquid"" savings account.  There's no call the bank, sell the security, wait for it to clear, my brokerage cuts a check, mail the check, cash the check, etc.  I can go from Apple stock on Monday to cash in my hand on like Thursday.  On the web portal for the bank that holds my CDs I can instantly transfer the funds from a CD to my checking account there net of a negligible penalty for early distribution.  To call CDs illiquid in 2017 is silly." One reason why you can get a better rate with a CD compared to a regular savings account is that they lock you into that account for the period of the CD. You can get out of the CD early, but you will forfeit some of the interest. You also generally can't move a portion of the money out of the CD, you have to pull it all out, and then start a new CD with the portion you don't spend. You have to check the terms and conditions for that particular CD.  Some people use them to hold their emergency fund. This is the 3-6 months of expenses you set aside in case of a major problem such as a medical emergency or a job loss. The rate is better than the regular savings account, so it can come closer to inflation. The goal is preservation of capital, not investing for the future. So if you understand the risks, and the CD is backed with the same guarantees as the savings account, then it is a viable way to store some or all of the emergency fund. The benefit, as other answers have mentioned, is higher interest rates than are available compared to other comparable options.  My bank keeps spamming me with offers for a sub 1% APR savings account that only requires a $10,000 balance, for example.  While CDs and similar safe investments don't seem like they offer much value now (or in the recent past), that's because they strongly correlate to the federal funds rate, which is near historic lows.  See the graph of CD rates and the federal funds rate, here. You may have felt differently in July of 1984, when you could get a 5 year CD with an APR above 12%.  As you can see in this graph of historical CD yields, it hasn't always been the case that CDs offered such small returns.  That being said, CDs are safe investments, being FDIC insured (up to the FDIC insurance limits), so you're not going to get great rates from one, because there's basically no risk in this particular type of investment.  If you want better rates, you get those by investing in riskier instruments that have the possibility of losing value. Others have pointed out why one typically chooses a CD: to lock in an interest rate that's higher than most other savings accounts (at the expense of having quick access to your money). While most savings accounts have practically 0% return, there are high yield savings accounts out there with little to no strings that offer ~1% APY. I've personally not found CDs to be compelling when viewed against those, especially for something like an emergency fund where I'd rather just know it's available without having to think about penalties and such. Some people ladder CDs so that they're always no more than a month or so away from having access to some of the money, but for the return I've decided I prefer to just avoid the hassle. For 2.25%, which I haven't really seen, I might consider it, but in any case, you're better served by paying more to your loans. Yes. Savings accounts and CDs today pay almost nothing. They are not a way to grow your money for the future. They are a place to keep some spare cash for emergencies. I don't have such accounts any more. Personally, I generally keep about $2000 in my checking account for any sudden surprise expenses. Any other spare money I have I put into very safe mutual funds. They don't grow much either, but it's better than what I'd get on a savings account or CD.
"The consumer who opens a CD may receive a passbook  or paper certificate, it now is common for a CD to consist simply of a book entry and an item shown in the consumer's periodic bank statements; that is, there is usually no ""certificate"" as such. http://en.wikipedia.org/wiki/Certificate_of_deposit Generally speaking, CDs should offer higher interest that typically doesn't vary, over the term of that CD.  So, in that way it offers a bit more security on the return.  But, they also lock up your money for a specific period of time." I had opened a PPF account with State Bank of India. If you had opened the account before you became NRI its fine. NRI cannot Open a new PPF Account. can I continue depositing money every year to PPF account? If you already have an PPF account, you can deposit funds into this. Best via transfers from NRE/NRO account. living in US for 2 years  Incase you have not deposited into PPF for a given year, you need to pay a penalty of Rs 50 every year and a Minimum of Rs 500 every year. So for 2 years your would need to pay Rs 1100/- to regularize the account. Normal contributions can begin after you regularize. continue staying here for few more years The PPF account cannot be closed, you can make deposits as above. On Maturity [15 years] you are expected to close the account and can transfer funds outside of India via the NRO account. I don't have an account with either of those CUs, but I do have membership at 2 different CUs.  If they accept credit card payments online via transfer from another institution, there's no reason to move your money, unless there are other benefits (higher interest rates). All the CUs would likely require is membership ($5 deposit minimum?).  If you were to get a card through Chase or Capital One, you wouldn't be expected to open a checking/savings account with them and transition over to those accounts. First, keep about six months' expenses in immediately-available form (savings account or similar). Second, determine how long you expect to hold on to the rest of it.  What's your timeframe for buying a house or starting a family?  This determines what you should do with the rest of it. If you're buying a house next year, then a CD (Certificate of Deposit) is a reasonable option; low-ish interest reate, but something, probably roughly inflation level, and quite safe - and you can plan things so it's available when you need it for the down payment. If you've got 3-5 years before you want to touch this money, then invest it in something reasonably safe.  You can find reasonable funds that have a fairly low risk profile - usually a combination of stock and bonds - with a few percent higher rate of return on average.  Still could lose money, but won't be all that risky. If you've got over five years, then you should probably invest them in an ETF that tracks a large market sector - in the US I'd suggest VOO or similar (Vanguard's S&P 500 fund), I'm sure Australia has something similar which tracks the larger market.  Risky, but over 5+ years unlikely to lose money, and will likely have a better rate of return than anything else (6% or higher is reasonable to expect).  Five years is long enough that it's vanishingly unlikely to lose money over the time period, and fairly likely to make a good return. Accept the higher risk here for the greater return; and don't cringe when the market falls, as it will go up again.  Then, when you get close to your target date, start pulling money out of it and into CDs or safer investments during up periods. Check out this Relevant Article.  Here's the first paragraph that answers your question: The opening and closing of bank (deposit) accounts doesn't affect your credit score. Your credit score is based on your lending relationships and public records, such as bankruptcy filings or court judgments recorded against you. The rest of the article goes into more detail. "At that sum, it essentially doesn't matter what you do, unless you just want to outright gamble the money.  Let's look at some options: ""High"" interest guaranteed savings.  A five year CD returns a sad 2% right now.  That means if you invest all $1,000 into a CD, by 2016 you will have earned $105.08 in interest.  Think about that:  About a hundred bucks over the next five years.  Of course, with 3% inflation, that $105.08 will be worth about $90.57.  In fact, the total amount will be worth $953.25.  Your ""doing something with your money"" did nothing. Stocks can return significantly more interest, but there is no guarantee.  Even if you made 20% year on year, you would only make maybe $1,500 in returns or so in the next 5 years, and 20% every year is like Warren Buffet territory--totally unrealistic.  That's also not taking into account inflation. And neither of these is taking into account taxes! However, if you go to a casino and gamble the $1,000, it is possible you could turn it into significantly more.  It's very much unlikely, and I do not advise it at all, but it's possible.   The point is, you need money to make money, and, in some sense, $1,000 is not money at all.  I recommend you work on your skills, knowledge, and preparation for making money in the future, and by 25 or so you can really be cooking with gas.  Don't waste your efforts trying to find a brilliant way to make a few hundred bucks over the next half decade.  Save the money and find ways to try to double it by earning money on small projects.  Then challenge yourself to double it again, and keep honing your skills." As you point out, the main benefits of a pension/retirement account over a traditional cash/taxable account are the legal and tax benefits.  Most Western countries establish a specific legal definition for an account which is often taxed less or not at all relative to taxable accounts and which contains some protection for the owner in case of a bankruptcy.  The typical drawbacks for investing within such structures are limited investment choice, limited withdrawal rights (either in terms of age or rate of withdrawal), and maximum contributions.  The benefits are usually very clear, and your decision whether or not to open a pension/retirement account should depend on a careful weighing of the benefits and drawbacks. As to whether you may end up with less than you started, that depends on what you invest in.  As with all of finance, you must take more risk to get more return.  Although the choices inside a pension/retirement account may be worded somewhat differently, they are usually fundamentally no different than some of the most popular investments available for ordinary taxable accounts. Most CDs at most banks can be set to automatically renew (ask your bank for details).   If you bought a 1 year CD every month, electing to automatically renew and you wouldn't have to touch it again after your 12 initial purchases if you didn't want to.