CD Rates

Certificates of deposit (CDs) are an excellent form of investment as they are FDIC insured and offer good APR. True, they do not offer the high potential returns that stocks do, but at the same time, they have far lower risk. Their major disadvantage to an investor is the length of time the money is tied up. However, since one of the major principles of investing for the future is that the money should not be touched outside of a dire emergency, this will keep the investor from pulling money out to buy a new plasma screen for watching Spacehunter on blu-ray.

It also helps to avoid the pitfall of chasing around after the best interest rate. If a new rate is not sufficiently high enough to offset the penalties of pulling out of an existing CD early, then the money should be left where it is. The investor can use a rate calculator to find the best CD rates when she is looking to invest more money.

The issue of the amount of time funds are tied up can be mitigated by the varying terms offered. CDs can be opened for as little as a single month and for as long as 2 years. Obviously, the longer the term, higher deposit amount will have the best CD rate, not to mention that interest can be compounded, which makes the investment that much more lucrative. If the investor knows she will need the money in a month or two, it can still be invested in a CD at a higher rate than a savings account, and without the temptation that can arise from having it close at hand. Over the course of a month or two, even a few thousand dollars will accrue a decent amount of money.

For example, say a family has been saving money for their child’s education. They have put as much as possible in the longest term CDs, and have a substantial investment return as the child reaches her senior year. At this point, some refiguring is called for. The parents will use a rate calculator to determine the best way to break up the CDs to provide for their child’s needs, while still finding the best rates and terms for the long haul. Some of the money will go into one-month CDs, more will go into 3-month CDs and the rest will stay in 1 or two year CDs, building down as needed. This same process can be used for retirement funds, making CDs a valuable asset to anyone’s savings plan.