Are CD’s good investments?

certificates of depositAs a financial planner, I cannot tell you how many times I have had this conversation with clients. I often hear them say, “I do not want to take any risks, so I invest my money in CD’s.” Little do they know, they are taking a bigger risk than they realize by doing this.

For my younger readers who may not be as familiar with certificates of deposit, they are simply an account you open with a bank or other financial institution. In return for locking in your money with them for a set period of time, which can range from as little as a few days to over 10 years, the bank promises you a set rate of return. If you ‘break’ the CD before its maturity date, you are often subject to penalties which can eat up the interest you accrued, and in some cases, even dip into the initial deposit you made. Generally, the longer term you choose to lock the money in for, the higher your rate of return will be.

People consider them to be safe investments for their money. I use the term investment very loosely. [Continue Reading…]