Are there any risks in CDs?

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F

FreshPrince

Diamond Member
Dec 6, 2001
8,361
1
0
Summit bank has incredible rates right now and I want to jump on it.

much better than the .5% my bank gives me..

so are there any risks? right now I can't think of any...
 
Q

QED

Diamond Member
Dec 16, 2005
3,428
3
0
Originally posted by: FreshPrince
Summit bank has incredible rates right now and I want to jump on it.

much better than the .5% my bank gives me..

so are there any risks? right now I can't think of any...
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Only risk if you really, really need the cash before the CD matures. Also, be sure to read all of the fine print to be sure there aren't any hidden conditions or provisions that might prevent you from getting the full rate they are offering.
 
Rubycon

Rubycon

Madame President
Aug 10, 2005
17,768
485
126
Keep them clean or your interest rates will skip and drop out. ;)
 
S

Sluggo

Lifer
Jun 12, 2000
15,488
5
81
Well technically they are only paying you about the rate of inflation, so you really arent getting ahead.

A guy we do some investing with says buying CDs from banks is "putting your money to sleep."
 
F

fitzov

Platinum Member
Jan 3, 2004
2,477
0
0
There are several money-market accounts out there at almost 5% right now--it's not worth locking-up your money for a year at this point.
 
her209

her209

No Lifer
Oct 11, 2000
56,336
11
0
Originally posted by: Sluggo
Well technically they are only paying you about the rate of inflation, so you really arent getting ahead.
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I don't think inflation is 5%.
 
E

everman

Lifer
Nov 5, 2002
11,288
1
0
You can get 4% in an ING account right now, no time restrictions like a CD. If you do want CDs, don't put all of your money into a single one. You can structure things so you always have something maturing in 3 months (or whatever time period you need, giving you more liquidity). It just depends on how much liquidity you need. And inflation is about 3%.
 
F

FreshPrince

Diamond Member
Dec 6, 2001
8,361
1
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Originally posted by: everman
You can get 4% in an ING account right now, no time restrictions like a CD. If you do want CDs, don't put all of your money into a single one. You can structure things so you always have something maturing in 3 months (or whatever time period you need, giving you more liquidity). It just depends on how much liquidity you need. And inflation is about 3%.
Click to expand...

so if I don't want my money to thin out, but too scared to invest it in stocks, I should put it in cd's? they seem to yield the highest interest right now that's safe.

 
E

everman

Lifer
Nov 5, 2002
11,288
1
0
You can do that, it's very safe and you can at least earn more than inflation. I don't recommend it because you can have low risk and use stocks & bonds and higher returns. It really depends on what you're investing for, and for how long. Generally short term needs lower risk, long term can handle higher risk.
 
E

everman

Lifer
Nov 5, 2002
11,288
1
0
ING has rates from 4.2544 - 4.85 depending on time horizon(on their site). Other banks often advertise teaser rates with a min/max amount.
I wouldn't get anything too long term right now because rates are expected to continue rising.
 
D

DaWhim

Lifer
Feb 3, 2003
12,985
1
81
the only risk I can think of is interest rate risk. if you are going with CD, it is safer to use the laddering method.
 
her209

her209

No Lifer
Oct 11, 2000
56,336
11
0
Originally posted by: DaWhim
the only risk I can think of is interest rate risk. if you are going with CD, it is safer to use the laddering method.
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As an example, is that when you invest every 3 months in a 6 month CD account until interest rates are at their peak at which time you can invest in a long term CD?
 
E

everman

Lifer
Nov 5, 2002
11,288
1
0
Originally posted by: her209
Originally posted by: DaWhim
the only risk I can think of is interest rate risk. if you are going with CD, it is safer to use the laddering method.
Click to expand...
As an example, is that when you invest every 3 months in a 6 month CD account until interest rates are at their peak at which time you can invest in a long term CD?
Click to expand...

A ladder is when you use multiple CDs (or bonds or other securities) with different maturity dates. IE: Every 3 months you invest 25% of your money in a 12 month CD. That way every 3 months you re-invest that money at the new interest rate for 1 year. This lets you take advantage of rising rates. It also provides you with more liquidity because you can have 25% of your cash available in 3 months, 50% in 6 months, etc.
 
K

Kevin

Diamond Member
Jan 1, 2002
3,995
1
0
Originally posted by: FreshPrince
Originally posted by: everman
You can get 4% in an ING account right now, no time restrictions like a CD. If you do want CDs, don't put all of your money into a single one. You can structure things so you always have something maturing in 3 months (or whatever time period you need, giving you more liquidity). It just depends on how much liquidity you need. And inflation is about 3%.
Click to expand...

so if I don't want my money to thin out, but too scared to invest it in stocks, I should put it in cd's? they seem to yield the highest interest right now that's safe.
Click to expand...

It depends on how much money you are looking to invest, how much liquidity you want and how much you want your money to grow. Generally a well educated investor can earn good returns in Stocks and Funds. If you're sitting on $1000 and want it to earn more than half a point with no risk (CDs are FDIC insured) then a 1 year (or less) CD should work for you. Don't lock into anything over a year since the fed keeps raising rates.

If you're sitting on $5 or $10k (min for some high return CDs) you're much better off in Stocks and Funds. Although your risk is somewhat higher (diversification eliminates most of that risk) your return will (potentially) be higher. Generally you'll want to earn at minimum the going rate of a 90-day T-bill.

 
Jeff7

Jeff7

Lifer
Jan 4, 2001
41,596
20
81
What about I-bonds? They do have a variable rate, but it's currently 6.73%, and is guaranteed to stay ahead of inflation.
 
her209

her209

No Lifer
Oct 11, 2000
56,336
11
0
Originally posted by: Jeff7
What about I-bonds? They do have a variable rate, but it's currently 6.73%, and is guaranteed to stay ahead of inflation.
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You can cash your Series I bonds anytime after 12 months. When you cash your I Bond, you'll receive the purchase price of the bond plus any accrued interest. If you cash a bond within the first 5 years, you'll forfeit 3 months worth of earnings.
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Grrrr....
 
her209

her209

No Lifer
Oct 11, 2000
56,336
11
0
Originally posted by: Kevin
If you're sitting on $5 or $10k (min for some high return CDs) you're much better off in Stocks and Funds. Although your risk is somewhat higher (diversification eliminates most of that risk) your return will (potentially) be higher. Generally you'll want to earn at minimum the going rate of a 90-day T-bill.
Click to expand...
Any service charges for having Stocks and Funds? How much better does it usually do compared to a CD?
 
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