CD's?

[LuckyJB]

I'm curious to know info about putting your money in CD's at the bank? Is this just a safe outlet for most Americans...since its a way most poor and middle America has been taught to do.."go to the banks, its safe".....or what? how about the taxes...rate of inflation...all that with CD's?

ex...someone with 10K to 30 K in a cd or so...

[Broken Arrow]

Conventional wisdom is that CDs allow you to lock in your money for a certain period of time at a certain interest rate. Typically, that rate is better than the savings account from the same institution.

The advantage in doing so is, if you believe the interest rate is about to fall, you can lock in your money while the rate is still at its current high.

The downside is that your money is locked up. Some have gotten around this by laddering their CDs (your savings split into several CDs that is set to mature at regular inteverals of anywhere from 1 to 3 months).

I'm probably going to get crucified for saying this, but... I don't believe in CDs.

For example, my checking account at my local credit union pays 5% at this moment, and at that rate, why would I want to lock my money into a likely lower interest rate?

Before my checking, I went with online savings, and they've offered competitive rates to local CDs, while retaining its liquidity.

Plus, at 2.25% I believe, the Federal Reserve has only SO MUCH room left to lower the rates... so I expect them to rise in the coming years. (However, some speculate that Bernanke may announce one last quarter percentage cut before the end of the year, but we'll see....) So, locking any money right now doesn't make any sense to me....

[jIM_Ohio]

I have a minimal amount of money for emergencies in CDs which mature once per month.

I agree with BA that better rates can be found. A few points- money market rates are NOT guaranteed (the interest rates can change daily) and the principal value is NOT guaranteed either (most are unit cost of $1, but that is not always the case).

CDs are for money you want in cash. In my case the interest from my CDs is siphened off each year and redirected to higher returning investments.

[jimmyengland]

cds are federally insured up to 100,000$. to be honest with you their is not too much difference in interest rates between a cd and a money market account.

The downside to a cd is that its locked up for that certain period of time although you can ladder your cds to create a little more flexibility. you can pull your money from a cd but you normally have to pay a penalty. At the bank I worked for it was two months of interest. Im not sure if this is typical industry wide, so you may want to check this. However if you think you need the money before then i personally would just go with a money market account as you should be able to find a rate comparable to a cd at certain instituitions.

Alot of banks will have specials on their money market accounts where they will actually lock in a rate for a certain time frame after that it will begin to adjust.

[disneysteve]

CDs can be good for folks living on a fixed income like retirees. You can set up the CD to pay the interest monthly, so it creates a steady and predictable income each month.

I currently own one CD. I parked 10K there to lock in the rate when rates started falling. When it matures, I may or may not renew it depending on what interest rates are doing at the time and what our needs are.