Credit Loan > CD Rates > Why Investing in CDs Should Not Be Like Gambling

CDs and Investments: No Poker Face Needed

Lottery tickets wouldn’t sell if the idea of getting rich quickly didn’t have a great deal of appeal. And let’s not even get started about poker or betting on anything. Investment vehicles such as CDs may pay off more slowly, but they are much more secure and have levels of guarantees that few others offer.

Granted, both gambling and the lottery as “investment” tools pay off just enough to keep them appealing, however, gambling is higher risk even than the stock market – or at least equivalent too – and the lottery well, every person who wins two-hundred-million dollars gets money that others “invested” and lost. The only odds one needs to play when investing in the tools I will be discussing is whether the interest rate is going to go up before you buy your next CD. And even if you misjudge on that quarter point, you can make up for it next time.

Unfortunately, unless you start very early, or aren’t planning on retiring until you’re about 130, CDs and IRAs are not likely to be able to serve all your retirement needs. While they have substantially higher interest rates than basic savings accounts, the interest is still lower than the pay off from a decent long-term stable stock.

At the same time, they offer a level of security a stock cannot. Both Investment Retirement Accounts (IRAs) and Certificates of Deposit (CDs) are FDIC backed, meaning that you will not lose the money you have in them, generally up to $100,000. This is not something that can be said of the higher pay off investment tools.

The other values of CDs and IRAs are that you can invest relatively small amounts, say $1000 to start them off. This means that they can be started fairly early in your career if you are careful with your money.

CDs and IRAs exist under different rules. IRAs have a cap regarding how much can be invested in any given year – based on the age of the investor – but at the same time, the money can often go in pre-tax, and definitely will not be taxed until used.

CDs have no limit to how many you can get each year, and their interest rate will go up depending on what size you buy and how long you buy it for. This rate is subject to change based on the market, but once the CD is purchased, will be locked in and can generally be rolled over into the next incarnation of that CD, allowing the accrued interest to be folded in at the same high rate.