CD rates have stayed constant for the last 12 months, leading some investors to believe that they are a safe bet to invest in. Part of this analysis includes the thought that an upturn in interest rates could be around the corner. The rise in CD rates could occur due to an anticipated hike to the interest rate from the Federal Reserve. CDs always have also proven to be useful investments for retirees, paying off guaranteed numbers at a low risk.
Certificates of deposit, or CDs, are savings accounts at banks where a person deposits a certain amount of money in exchange for a guaranteed interest rate by the banking institution for a fixed number of months. Over the past 12 months, this interest rate has stayed almost the same, with the average for a one-year CD at .23 percent and five-year CDs hovering at .78 percent. The highest interest rates for a one year CD can top out around 1.1 percent. While these CD rates may seem low, they are one of the few guarantees in a financial market where almost nothing is guaranteed.
Something for investors to be excited about is the fact that the long term steadiness of these interest rates can indicate that they may be due for an increase. If the economy continues to do well, the interest rates on CDs will begin to rise. Though the Federal Reserve has no plans to raise the interest rate until the middle of 2015, now might be a good time for investors such as fixed income retirees to get involved. Analysts believe that because the CDs are a low risk but have guaranteed payouts at the end, they are a good investment for people with a fixed income.
CDs, because of their relatively low risk, may be a good idea for people looking to maintain money with a small amount of growth, but they are not an investment for people looking to exponentially grow wealth. The current CD rates are just not at a place to grow money, especially when the inflation rates are so high. Other investments like real estate, stocks, and bonds can help a retirees investment portfolio fill out in a way that CDs, while they are low risk, can not guarantee on their own.
When looking for the best way to maximize investing with CDs, investors should shop around. Since rates can be lower in different parts of the country, finding a bank that will have the best interest rate is important. And because penalties on closing out CDs are small, moving the deposit should be no trouble. These penalties often add up to a few months of whatever interest would have been compounded if the account had continued. Many banks also have various “specials”, deals on interest rates that activate whenever a specific amount is deposited at the beginning of the CDs life.
CDs, or certificates of deposit, have maintained a constant interest rate and because of this are a good deal for investors. However, because their rates are so low, these CDs are only good for preserving wealth, not growing it at a high rate. Since the CD rates have stayed constant over a year, investors hope that they are about to go up. Since these rates are constant, CDs can be a good investment for retirees or those with a small or fixed income.
Commentary by Bryan Levy