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Certificates of deposit (CDs) are a safe and secure investment for many investors. Unfortunately the return investors get in certificates of deposit have been dismal for many years. Last month Market Rates Insight (MRI) released a report showing the average 5-year CD rate was lower than the rate of inflation. This means if you invest in long term CDs you're not even staying ahead the inflation rate. We all learned in economics 101 your investments have to stay ahead the inflation rate. If you don't stay ahead your savings will be eaten away by inflation and eventually you won't have any money. You might want to start considering other types of investments that won't be eaten away by the inflation rate. Treasury Inflation-Protected Securities, or TIPS, provide protection against inflation. This might be a better alternative for you. TIPS offer the security of CDs and right now offer a better interest rate. If you still want to invest in CDs stick to short term CDs of a year or less so you can enjoy the increase in rates that should be coming in the next year. Don't lock your money into a long term CD paying a low interest rate and suffer when rates go higher or incur an early withdrawal penalty by cashing in your CD before it matures. Current 1 year bank CD rates and credit union CD rates are averaging around 0.75% but you can get rates higher than the average. The highest CD rates on 1 year CDs can be found around 1.20% to 1.30%. You should comparison shop just like you would for any big purchase. I'm going to show my age here but I remember before you could shop online you had to go to your local banks and credit unions to find the best rates, a very time-consuming process. Thankfully searching for the best CD rates is easy these days and can be done from your sofa. I just found a 6 month CD rate at 0.94 percent from a national bank. There are many banking websites that are dedicated to providing the highest CD rates. Many of them don't actually offer the best rates. Stick with the websites that have a list of rates from many banks. Some sites offer a list of dozens of rates from different banks and credit unions. When you're comparing CD rates you shouldn't only search for the highest CD rates there are a few other considerations to make when investing. The minimum deposit amount to open a certificate of deposit, the bank's health is another important consideration to make. The early withdrawal penalties can be costly so you should look into that as well. One CD investment strategy that can be used is to invest in a longer term CD with the intention of cashing in the CD early when interest rates go higher. If you find a bank that has a small early withdrawal penalty you can actually get a higher rate than you normally would have even with paying a penalty. How does this work? Right now the best CD rates on 1 year CDs are around 1.25%. Say you invest in a 5 year CD paying 2.50%. After the first year you cash in your CD. If after paying the penalty you still make more than you would have investing in a 1 year CD you're ahead of the game.
Find the best CD Rates and Mortgage Rates by searching our rate tables.
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