12 Sep Why do I need a checking account to buy a CD?

Q. I have savings accounts at three different banks, only one of which I have a checking account with. One of the banks has pretty good interest rates right now on CDs, but I am not eligible for a CD without opening a checking account. I researched a different bank thinking I might switch, but the same requirement holds true for them. I don’t need more than one checking account. Why does it matter if I have sizable savings in the bank?
— Saver

A. We’re glad to see you’re shopping around as there are some attractive interest rates out there now.

It may seem like a checking account would be excessive, but there’s a reason for the requirement.

Let’s start with some background.

CDs, or Certificates of Deposit, pay a fixed interest rate over some period such as 3, 6, 9 or 12 months, said Jody D’Agostini, a certified financial planner with The Falcon Financial Group in Morristown.

They are federally insured up to $250,000 per account title, she said.

“Once the CD matures, the interest is credited to you. It could also be credited monthly,” D’Agostini said. “The bank will need a vehicle to deposit the interest into, which is why they may require you to open a checking account.”

The CD could also roll over to a new CD at maturity at the prevailing interest rate, she said.

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This story was originally published on Sept. 12, 2023.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.