Money Matters Lesson 6: CDs (And I’m Not Talking About Britney’s Circus Album)

[College kids are notorious for being poor. And why shouldn’t we be? We take out student loans to pay for private universities, can barely balance a part-time job with our full-time courseload, and the only “balance” we’re familiar with refers to the number of points left on our dining hall cards. Oh, did I mention many of us tend to splurge every extra penny on PBR’s at the campus bar?

By Kathryn S

If you disagree with everything I just said, you probably don’t need this column. But if you’re nodding along because you’re officially an adult and still don’t know how to manage your money, then you might want to pay attention every week, because I’m going to (try to) get you through this, and make you a successful saver and a wise spender.]

With the economy so crappy these days, banks are jumping over each other to get to you. With deals like Rewards Checking, it’s hard not to be lured in. I mean, a percentage of cash back just for spending? It sounds too good to be true.

Because it probably is.

I’ve been bouncing between hoarding my money in a checking account or a savings account for some time. Do I want the interest, or the rewards? Chances are, you’ve had similar decisions to make. But what about these CD things that banks advertise? What are these all about?

Personally, I always assumed that CDs were for old people. You know, people with careers and mortgage payments. Until a friend opened a CD that became her “European Vacation” fund.

A CD is basically a Savings Account… except you can’t make withdrawals whenever you feel like it. Opening a CD requires a timestamp, usually lasting six months, one year, or five years or longer. The longer you put your money “on hold,” so to speak, the greater your interest rate, which means the more moolah you’ll accumlate by NOT spending.

Yeah, right. Like college kids have enough money to just hide away for six months. While CDs generally are geared towards people who have solid careers and are infancially stable– Jumbo CDs require a minimum of a whopping $100,000 deposit– more and more variations of CDs are popping up across the country.

My friend has what is called an “Add-To” CD. Each week, when her paycheck is direct-deposited into her account, a small percentage is put into her CD. Sometimes, she even forgets that something is being deducted from her pay, because she still gets some money every pay period. However, since she can’t access her money for six months, it will continue to accumulate. When she’s ready to cash in and take her European vacation, BAM! All that money will be hers for the taking.

If you have even a little bit to spare- some birthday money, a random bonus at work, the cash you got from textbook buy-back– it might be worth looking into whether your bank offers small CDs. You can hide it away for six months, and once summer hits, you’ll have this money that you may have forgotten about! Use it on a bathing suit shopping spree or a mini-vacation…or renew your CD and wait for a rainy day in another six months or so!