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CDs and Investments: Not The Things You Had Before MP3s

Whenever the financial news comes on, I want to change the channel. This is probably not the best way to deal with the world, but there are times when the market report makes global warming seem positively cheery. It is somewhat reassuring amidst all of this to know that there are still a few investment tools, such as CDs, that are not utterly doomed.

As tempting as it is of late to want to buy the most fire-retardant mattress available and stuff all our money there, that remains an unsound financial strategy. The best advice is still to have a balance of the existing investment options, though what that balance should be might change from quarter to quarter. To this end, it is crucial to make CDs (certificates of deposit) part of your investment portfolio. While the interest rate is never going to make you rich and basing your entire savings plan on them is unwise, they have certain advantages over many other formats.

The most important aspect of CDs is the security they offer. Nearly all of them (and this is something you will want to check out before purchasing) are FDIC backed. This means that the Federal Deposit Insurance Commission will make good on your investment even if the bank fails, up to $100,000.

Now sadly, $100,000 is nowhere near enough to retire on, but it’s better than a poke in the eye with a sharp stick. Also, if you happen to be the kind of person who has enough CDs that they total up to more than $100,000 (or will soon with accrued interest) and you don’t want any other investment format, that dollar limit is per bank/company. So, you can move some to another institution and start over.

Another advantage of CDs over some other forms is that the interest rate is fixed for whatever period you have purchased the CD. This can be as little as a month or as long as five years. Yes, if the rate goes up while you are locked into it, you will miss out on that higher rate. By the same token however, if the rate drops, your existing rate will hold for the entire term, and may even be able to be rolled over into the next term.

CDs are fairly low-maintenance. You will receive a notice that it is about to mature, and while you can choose to cash out or some other option, if you choose to do nothing, it will continue to accrue interest for another time period equal to the first.