Does anyone recommend getting CDs to save money?



Does anyone recommend getting CDs to save money?





At the moment, with US interest rates still rising, the wisdom of tying up your money in CD's at current 'low' interest rates is a bit iffy. The risk factor is that by the time your 1-2 year CD runs out, the interest rates available on money market accounts (which don't have early withdrawl penalties) may actually be paying higher interest than your CD does. The real virtue of CD's comes into play when US interest rates start to drop, such that tying up your money in a CD will 'lock in' today's higher interest rates and provide a significant improvement in interest payments to justify the early withdrawl penalty time commitment.




I like to put money into CDs so that I can't touch it for at least 3 months. If it's in my savings account, I'd spend it ASAP. Also, the interest rate offered by my credit union are 4-5%, way more than the 0.00001% I get in my savings.





Credit Union CD's are another area where their low operating costs and more 'flexible' approach to rules and fees really pays off. Most Credit Unions do pay higher interest rates on CD's than commercial banks, and most Credit Unions will also waive charging an early withdrawl penalty if you provide any sort of a 'hardship' explanation as to why you need to cash the CD in early.
Also, as Lisette is probably thinking but not directly saying, a 3 month term CD doesn't really present much of a 'time risk' - basic interest rates seldom move very much in just 3 months, there are few overriding personal needs for cash that can't be put off for 3 months etc. A very different 'time risk' situation emerges when the term of the CD is 1-2-5 years. But to compensate for that 'time risk', the interest rates paid on 1-2-5 year CD's are progressively higher too.
Bookmarks