Technically speaking, certificates of deposit are very much similar to bonds, only in this case, you lend money to a bank or other financial institution. You agree to deposit a lump amount of money, untouched, for a preset period, in exchange for better interest rates when compared to a savings account. Unlike bonds, there is a possibility for early withdrawal, but of course, there will be penalties in this case.
Given that the options for CD’s in the U.S. is widely competitive, you must ask around for the best rates.
You have probably heard about retirement plans before, and they are far easier to understand than most people believe. There are fewer variables when compared to other investments, so once you point out your retirement profile, choosing a plan will come as a no-brainer.
- 401(k): an employee benefit that allows you to deposit a set portion of your pre-tax paycheck to a retirement account. The full value of your yearly contribution reduces the amount of taxable income for that year, as well. However, there is a limit set by the IRS – in 2023, it’s $22,500.
- IRAs: if you have already maxed out your 401(k), you can open an IRA account and contribute up to $6,500 per year (as of 2023). After you deposit your money, you can invest it as you best see fit (stocks, bonds, ETFs, and so on).
- Roth IRAs: Unlike traditional IRAs that work with pre-tax dollars, Roth IRAs work with post-tax income. If you think your total income will grow exponentially during your lifetime, a Roth IRA is the way to go, since there won’t be taxes applied to money earned within it.