CDs your thoughts about them.

[abcfisher1]

Earlier this year my wife and I purchased a 1yr CD at 1.65% with cash that was just sitting in a savings account she started over 10yrs ago which was only earning around 0.7%. The starting amount was 18k. It has earned 137 dollars thus far. One of my buddies laughs at me each time I mention the investment and says I'm wasting my time and I'm only making money for uncle sam to take come tax time. Is this true?
This money is one of our savings accounts and we have only used it once on our 10yr anniversary. What would you do?

[littleroc02us]

It all depends on what the purpose of this money is. If you are just keeping it around for an EF fund then I would put it into a Money Market Fund. Check Bankrates.com for the best account available. (1.3 - 1.6% most likely)

If you need it for a large purpose then CD's may just get you a slightly better rate. Also check Bankrate.com

If it's for investments than I would check Vanguard.com for an index fund that has a good track record for the last 10 years.

Good luck.

[bjl584]

CD's are ok for a midterm type purpose. Something that you will be buying a year or two from now. It's a safe place to park cash. I wouldn't recommend it for an EF or short term savings goals.

[snshijuptr]

I love CD's. If you need to protect your principle, they can be the best place to stash your cash. You didn't mention the purpose of this cash. Is this an Emergency Fun? Is the money for a specific goal? Or is this just extra money you have lying around? If the latter, you might want to figure out some purpose for this money. Remember money itself is not worth anything, just the things it will get you (one of those things being piece of mind in times of a crisis, i.e. an emergency fund).

[MonkeyMama]

It depends what you need the money for, etc. I use CDs all the time, but haven't bothered to use any CDs while rates are rock bottom. Why lock in "rock bottom?"

Ally has a decent product - "raise your rate" CDs which gives you a little more flexibility - rate is 1.57% today? I haven't bothered since I didn't want to go through the hassle of the CD - may need the money a little more short term. Plus, there are plenty of online banks that will pay you about as much for an online savings account. I just haven't seen any lucrative CDs in about 2 years, myself.

[snafu]

abcfisher1: If I read your post correctly, $18,000. was sitting in a saving account for 10 yrs. until you bought a 1 yr. CD @ 1.65%. You may feel that you have eliminated the risk of investment but regrettably, you have locked in a 10 yr. loss to inflation and buying power. While the sum is locked into the CD, you might start researching the best split between Equity and Bonds for the sum within reasonable risk parameters for you.

The rules are changing. 'Buy and hold' is nearly dead for many of us. I've now set a 'sell' target for most of my holdings to avoid getting slapped as I did last year. I have protected myself with hard math. My saving grace was staying with my program and continuing to buy on down slides.

[cjscully]

They key question in all of this is what the money/CD is to be used for. In my experience money generally has to have some sort of purpose whether it's your EF, a purchase goal such as a house or car, or your retirement. You don't want your EF in a CD because you don't have full access to it at a moment's notice. A CD is a good place to put money that you're planning to use in a year or two for a major purchase. CDs are lousy long term investments. For long term investments for retirement or wealth building you need to evaluate higher return investments that fit your tolerance for risk. As a rule of thumb the older you are, the less risk you can afford to take.

That's the best answer I can give to "what would you do?" without knowing a little more about what your plans are for the money.

[jpg7n16]

My thoughts on CD's: inflation averages 2-3%. The only investments I ever want below that are for things I need really soon.

Money market accounts are usually comparable, but without the fee to cash out. So I'd just rather put my money in a money market account.

5 year CD's? I'd rather have my money in short-mid term bonds. They pay better on average.

[Jeff78703]

Yeah, I stopped investing in CD's because they just have such low yields. Not knowing what you want to do with the money, I would suggest a money market (find the best on Bankrate as someone mentioned) or perhaps a bond fund with Vanguard. Still pretty low risk, but yields will be a percent or two higher - at least keep you level with inflation...

[investingnoob]

Savings accounts offer better rates though.
I use Smartypig which gives you 1.75%.

[abcfisher1]

Thanks for all to responses. Just to clarify the purpose of the money, there really is none. Each month a small % of my wifes check goes into a savings account at the local credit union. It has grown over the last 13yrs to this amount. I wanted to do something to earn more intrest, but honestly I didn't know what, so we put most of it in a 1yr CD. When it matures next April I'm hoping to make a good decision on what to do next and I knew you guys could give me plenty of ideas We already have and EF set aside in another Saving account.
Thanks

[MonkeyMama]

Originally Posted by cjscully

CDs are lousy long term investments.

I'd qualify that with saying CDs are currently lousy investments.

Not always so. Anyone who locked in a long-term CD at a higher rate is sitting pretty right now.

Even my retirement portfolio has cash positions, even if most of it is in stock/bonds.

[MonkeyMama]

Originally Posted by abcfisher1

Thanks for all to responses. Just to clarify the purpose of the money, there really is none.

I suppose the next question is what could it be used for? A home? College? Cars? If you don't have a need for the cash for any big expenditures in the next 5 years or so, I would invest it more aggressively. (Consider mutual funds).

If the purpose is more of a cash cushion/emergency fund, and you want to insure the principal balance, then cash is really the only option. Low interest rates are somewhat temporary.

If it's more than ample for a rainy day, and no plans for many years, consider shifting some into balanced mutual funds. Maybe just enough to open an account, and then deposit future amounts into it.

[Slug]

Aside from the issue of where it is to be used, you're hearing a lot of negatives with regard to CD's. If you have a long-term time horizon and desire a riskless asset that might lose out to inflation, then CD's are better than most money markets these days.

If you want to consider other CD products, please look into the 5 yr CD at Ally Bank. The term is long, but the penalty for pulling out early is very minimal AND the rates are comparatively good.

[cjscully]

Originally Posted by abcfisher1

Thanks for all to responses. Just to clarify the purpose of the money, there really is none. Each month a small % of my wifes check goes into a savings account at the local credit union. It has grown over the last 13yrs to this amount. I wanted to do something to earn more intrest, but honestly I didn't know what, so we put most of it in a 1yr CD. When it matures next April I'm hoping to make a good decision on what to do next and I knew you guys could give me plenty of ideas We already have and EF set aside in another Saving account.
Thanks

OK. Since this is long-term money and definitely not your EF, the next question is what is your tolerance for risk? You're likely to get better long term return on some or all of that money investing in stocks/bonds, but with those you have some risk. If you want no risk, then you should compare CD and money market rates and determine which is the better choice for you.