Dumb with Money

CDs are, in most cases, going to be your largest return on a sure thing when it comes to short term savings. They can be purchased from banks or brokerages. The term length is anywhere from 3 months to 5 years.

CDs are great because:

1. They are safe investments. You are lend banks or brokerages your money for a fixed amount of time and your guaranteed a rate return. In a way, you are loaning the bank money.
2. They are FDIC insured. If the bank or brokerage goes belly up, you still get your return.
3. CDs pay more than online savings accounts and money markets on average.

CDs suck because:

1. Once you purchase the CD, your money is locked in. In most cases you can get it back early, but there is a penalty. The penalty can in some cases eat into the initial principal. Your rate is locked in to, that can be good or bad.

My Take On CDs:

They are great for your short term savings. Can’t beat guaranteed money for money you depend on.

They are also great for mid-range savings, if the economy looks like it will be taking a dive. Not that you need a crystal ball or anything to know when the economy is looking bad. When the Fed starts slashing rates like Freddy Krugrer, it’s time to lock into a CD. Usually the old school banks are about a week or two behind the online banks to change rates. When you see that your online savings account is cut in half over night, lock in a CD with an old school bank right away.