What is the primary benefit of a 10-year CD compared to a regular savings account?

What is the primary benefit of a 10-year CD compared to a regular savings account?

• A. Lower minimum balance requirement.
• B. Higher interest rate due to the longer commitment.
• C. Less liquidity.
• D. Greater access to funds.

Answer: (B)

The primary benefit of a 10-year Certificate of Deposit (CD) compared to a regular savings account is the higher interest rate that typically comes with the longer commitment. CDs require investors to lock their money away for a specified period—such as 10 years—in exchange for a fixed interest rate that is generally higher than what one would earn in a traditional savings account. This is designed to incentivize depositors to keep their funds in the account for the entire term, as banks benefit from the predictability of cash flow associated with long-term deposits. Long-term CDs, like a 10-year CD, often offer an attractive return that can significantly exceed the interest rates on regular savings accounts, especially prevailing market rates. This higher interest is beneficial for savers looking to maximize their earnings over time without taking on investment risk. In contrast, other options may not provide the same financial incentives; while lower minimum balance requirements, less liquidity, and greater access to funds are features that can appeal to certain users, they do not encapsulate the primary financial advantage of committing to a long-term CD arrangement. The increased interest earnings is what typically draws savers to consider a CD over a traditional savings account.

The primary benefit of a 10-year Certificate of Deposit (CD) compared to a regular savings account is the higher interest rate that typically comes with the longer commitment. CDs require investors to lock their money away for a specified period—such as 10 years—in exchange for a fixed interest rate that is generally higher than what one would earn in a traditional savings account. This is designed to incentivize depositors to keep their funds in the account for the entire term, as banks benefit from the predictability of cash flow associated with long-term deposits.

Long-term CDs, like a 10-year CD, often offer an attractive return that can significantly exceed the interest rates on regular savings accounts, especially prevailing market rates. This higher interest is beneficial for savers looking to maximize their earnings over time without taking on investment risk.

In contrast, other options may not provide the same financial incentives; while lower minimum balance requirements, less liquidity, and greater access to funds are features that can appeal to certain users, they do not encapsulate the primary financial advantage of committing to a long-term CD arrangement. The increased interest earnings is what typically draws savers to consider a CD over a traditional savings account.