Why A CD Is A Horrible Investment Right Now
I frequently read on other blogs about why you should put money into CDs and how to create CD ladders and so forth. Well, I’m here to tell you that a CD is a terrible investment and why.
Low Interest Rates
I looked at my ING DIrect account to see what kind of CD rates they offer. The highest rate was 3.75%. Basically, if you go the CD option, you make a very small return that hardly covers inflation. There are plenty of dividend yields from conservative stocks that offer a better return.
Your Money Is Locked Up
Why would you lock up your money for 6 months up to several years, especially with a minimal return? The reality is that your money locked up for a minimal return is not a good decision. In most cases, taking your money out early will come with a penalty. As you continue reading, you will see there are plenty of other options that offer more flexibility and/or better returns.
The Inflation Risk
With locking your money up at a mediocre rate, you are at risk of actually losing money by having money locked up earning a return that is smaller than the rate of inflation. Doesn’t make sense, does it? The inflation risk is a real risk these days especially as our government spending and national debt continue to skyrocket. The US Dollar is at risk of losing its prestige more and more with our irresponsible government.
Better Options For Your Money
The attractiveness of CDs is typically the guaranteed return. If you want the guaranteed return, why not pay off your mortgage? You will get a higher return in most cases. If you have two mortgages, pay off the one with an adjustable and/or higher rate. This is money a much better investment than a CD.
If you do not want your money locked up, then look for high dividend yield stocks. Many stocks such as Philip Morris Int’l offer very low downside potential, decent upside potential, and a great dividend yield. Search for conservative stocks with stable earnings, strong balance sheets and a history of raising dividend payments. These stocks are a decent hedge against inflation also.