Bank CD’s have long been a very stable choice for investors. They provide a low-risk place for the investor to put their money because the interest and the principal are guaranteed up to $250,000. However at the current time those benefits can also become a huge disadvantage. Because money is tied up in a CD for a fixed period of time, the investor will incur penalties if they try to tap into the funds earlier. Additionally, with interest rates on CD’s at historic lows, the yield will not be as significant as other investment tools.
The bad news for CD investors is that most economists believe the current low rates will remain at least through the end of 2014, with many predicting that this trend could continue through 2016. Additionally, unsuspecting CD investors are also becoming the victim of CD rate scams. The scams, which have the attention of the Financial Industry Regulatory Authority, are hitting the email in boxes and telephones, and are promising unsuspecting savers across the United States unheard of high rate offers.
All of this confusion can leave the investor wondering what options are available and the wisest mix of investment tools for their portfolio. Some of the best advice we can give (specifically with regard to high rate offers) is if it seems too good to be true, it probably is. Additionally, we suggest that investors consider their options concerning the other investment tools at their disposal in lieu of a CD. There are several other options to consider, many of which provide higher rates and yields. Lately investment grade corporate bonds (the type that count as Type 1 investments just like CDs) have been offering rates in the high 2%/low 3% range for 3 year maturities. Since most banks will not give you interest over 1% even for 3 years, investing in these alternatives to bank CDs could increase your interest income 3-fold.
Finally we recommend that investors seek additional help if they are not experienced in making these types of investment decisions. And, as always, we recommend utilizing the services of a fiduciary advisor, who will provide investment options that are motivated only by the best interest of the customer (instead of for the “advisor’s” own personal financial gain) and take the time to closely monitor their portfolio moving forward.