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Investing In A Rocky Economy

With all the talk about a recession (Are we headed for one? Are we already in a recession?), many people are unsure where the safest options are for investing their money. Stock values and retirement accounts are plummeting and whether or not you're in them for the long haul, you may still want to invest some of your money in investments that are considered “less risky” in an effort to combat the situation of the current economy.

Certificates of Deposit are an option for a reasonably safe investment that also offers the opportunity to earn interest. It's a bit like loaning money to the bank; and in return – they pay you interest on the money you've loaned them. The CD is a note from the lending institution that states you are investing a certain amount of money for a specific time period; and during that time period, the lending institution will pay you a guaranteed interest rate when the CD matures at the end of the designated time period.

You can choose the investment period you prefer, with options ranging from a few months to several years. Usually the longer you invest the higher your interest rate, but the amount of your deposit will also play a role in the interest rate you secure. High yield certificates of deposits are typically offered around 4% interest for deposits of $5,000 or more, but it will vary from one lending institution to another. The varying interest rates are a good example of why it's important to take some time and compare your options for investing in certificate of deposits. Just as an online bank can offer better rates and terms on checking accounts and money market accounts, they are often likely to have the ability to offer higher rates on their certificate of deposit accounts due to having lower overhead costs for operating expenses.

During times of economic difficulty, a certificate of deposit is a nice option for investing money you can't afford to lose. The potential of losing your money in the stock market is a much greater risk and you can easily lose your money just as fast as you invest it in stocks. Putting your money into a certificate of deposit, on the other hand, guarantees that the interest rate you are given when you invest is locked in for the life of your certificate of deposit and will not change. You know exactly how much money you'll have at the end of your investment term.

While safe investments, the downside of a certificate of deposit is that you are committed to investing for the full length of time you arrange when you set up the investment. If interest rates increase after you've invested your money, you can't just pull the money out of your CD and move it to a new investment (at least not without paying early withdrawal penalties on your certificate of deposit!)

In an uncertain economy, and any time you want to invest money in secure, interest earning options, a certificate of deposit is a practical investment. If you have enough money to deposit to qualify for a high yield certificate of deposit, you'll earn an even more attractive interest rate that does not decrease in value and does not pose any risks of losing your initial investment.

Richard Stooker
  |     |   Comment #1
Hi, Debbie,

I agree that certificates of deposit are underrated as investments.

As Will Rogers once said, "I'm not so concerned with the return on my investment as with the return of my investment."

In other words, there is some value in safety.

It's unfortunate that our country's politicians have decided that the politically expedient way to pay for a huge national debt is to devalue the dollar. To that extent, they refuse to raise interest rates to give savers a better rate. The desire of our politicians to buy the votes of people who want a handout is being paid for by people who receive interest income -- from savings accounts, money market accounts and certificates of deposit.

And by everybody who is paying higher than necessary prices for foreign items, because the value is worth so little.

This includes not only gold (the price of gold has not gone up so much in euros as it has in US dollars), but in the price of oil, which of course is a drag on the entire economy. Energy is part of the price of everything.

Still, many people in the stock market from November 2007 through March 2009 wished they had their money in CDs instead!

But if inflation rises, people will abandon certificates of deposits, because their purchasing power will not keep up with the devaluation of our currency.


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