Are there any risks in CDs?

[amdforever2]

Risk?

Yes.


If you invest more than $100,000 and a bank failure occurs, there is significant risk.

 

[FreshPrince]

Originally posted by: amdforever2
Risk?

Yes.


If you invest more than $100,000 and a bank failure occurs, there is significant risk.

even if the bank is FDIC insured? or in the case of Credit Unions, CUNA insured?

 

[OS]

Originally posted by: her209

Originally posted by: Sluggo
Well technically they are only paying you about the rate of inflation, so you really arent getting ahead.

I don't think inflation is 5%.

I've read people arguing that the government purposely understates inflation if you're using CPI as a guide. One argument is pretty much anything that really matters, health insurance, energy, housing, educations, are all increasing at rates much higher than ~5%.

That being said, 5% is better than nothing and letting the money sit in a checking account.

 

[her209]

Originally posted by: FreshPrince
even if the bank is FDIC insured? or in the case of Credit Unions, CUNA insured?

FDIC usually insures up to $100,000.

 

[FreshPrince]

Originally posted by: her209

Originally posted by: FreshPrince
even if the bank is FDIC insured? or in the case of Credit Unions, CUNA insured?

FDIC usually insures up to $100,000.

that's good for me

 

[sniperruff]

emigrantdirect has 4.5% savings, 5% 18-month CD.

 

[Kevin]

Originally posted by: her209

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.

Any service charges for having Stocks and Funds? How much better does it usually do compared to a CD?

There are a ton of variables all related to your comfort level. Generally with stocks the only fees you'll pay are your commission fees to the broker, which is pretty cheap if you use one of the online services. However if you give your money to a financial planner they are going to charge you management fees and such. Mutual Funds and the like also carry fees which are outlined in the prospectus. You're looking at a management fee and a load fee and the rates vary for each fund and issuer.

The return on stocks is higher than the return on CDs since the risks are far greater. With stocks there is always that chance you could potentially lose your principal whereas with a CD you won't since it is insured by the FDIC. A stock on the otherhand can plummet overnight, leaving you with nothing.

Fortunately the key to eliminating your risk is diversification. Typically an extremely well-ballanced portfolio should have 20 or more components (stocks, etfs, etc.) in different industries, sectors and companies. A very rough example would be if you bought shares in 2003 of Fannie Mae and held it today you would be down roughly 30%. However if you also purchases Starbucks at that time and held it till today you'd be looking at a 95% gain. This is an extreme example but shows how important it is to diversify.

Also, depending on the account (select retirement funds I believe), the FDIC will insure deposits up to $250k.

 

[Jeff7]

Originally posted by: her209

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.

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.

Grrrr....

No different than a 60 month CD.

 

[bondboy]

Originally posted by: Kevin

Originally posted by: her209

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.

Any service charges for having Stocks and Funds? How much better does it usually do compared to a CD?

There are a ton of variables all related to your comfort level. Generally with stocks the only fees you'll pay are your commission fees to the broker, which is pretty cheap if you use one of the online services. However if you give your money to a financial planner they are going to charge you management fees and such. Mutual Funds and the like also carry fees which are outlined in the prospectus. You're looking at a management fee and a load fee and the rates vary for each fund and issuer.

The return on stocks is higher than the return on CDs since the risks are far greater. With stocks there is always that chance you could potentially lose your principal whereas with a CD you won't since it is insured by the FDIC. A stock on the otherhand can plummet overnight, leaving you with nothing.

Fortunately the key to eliminating your risk is diversification. Typically an extremely well-ballanced portfolio should have 20 or more components (stocks, etfs, etc.) in different industries, sectors and companies. A very rough example would be if you bought shares in 2003 of Fannie Mae and held it today you would be down roughly 30%. However if you also purchases Starbucks at that time and held it till today you'd be looking at a 95% gain. This is an extreme example but shows how important it is to diversify.

Also, depending on the account (select retirement funds I believe), the FDIC will insure deposits up to $250k.

For new/lazy investors that don't know/want to have to pick out 20 stocks for a portfolio, an index fund is the way to go. Check out VFINX or VTSMX.

 

[Lithium381]

my brother and i just locked in a 4.25% CD for 7 months geuss i'll come back then and look at these other links, they seem to offer decent rates, wish i'd have seen it sooner.

 

[Kevin]

Although VFINX is an excellent fund, the minimum investment is $3,000. The main objective of the fund is to follow the S&P 500 and it has some of the lowest fees of any fund.