We have some CDs along with IRAs, they are a safe and stable investment although the yields these days are very low. More HERE.
Many investors, probably most, start as a child with a simple bank account. Later come stocks, bonds and funds, with bank accounts mainly used for everyday expenses. They're safe and convenient but don't pay much.
A top-yielding certificate of deposit might pay a bit more than 2 percent if you're willing to tie your money up for five years, for example, while the Dow Jones industrial average is up more than 18 percent since the start of the year.
Why, then, would anyone buy a CD?
There may be several good reasons, experts say, mainly because of safety. That's especially so at a time like now when other interest-paying investments, like bonds, are in danger of losing value from rising interest rates.
"Yes, there is a case for CDs today," says Chris Robbins, investment advisor and fixed-income analyst for Bartlett & Co. in Cincinnati.
"CDs can be a good fit for risk-averse investors with a specific future cash need, or those trying to create some income stability within a larger portfolio of other assets," Robbins says. "But investing in CDs won't give you the same yield as something that carries more risk, like corporate bonds. So there's a tradeoff."
CDs are meant to be the generous option in bank savings. Because investors must lock their money up, typically for three months to 10 years, banks will pay more on CDs than in savings accounts, money-market accounts or interest-bearing checking accounts that allow withdrawals at any time. Cash stashed in CDs is available for the bank to put to work in mortgages or other loans.
The longer you're willing to tie up your money, the more you'll earn.
An average one-month CD will yield about 0.2 percent these days, while you can get nearly 1 percent on a two-year deal or about 1.5 percent five years, with better deals available if you're willing to go to the most generous providers wherever they are. That's better than next to nothing earned on a savings or checking account, but won't make you rich. In fact, a shorter-term CD will lose money when inflation is considered.
On the other hand, making a killing isn't always the chief goal. Many investors want safety, at least for a portion of their holdings, and CD holdings up to $250,000 per person are insured against loss by the Federal Deposit Insurance Corp. Making 1 or 2 percent would seem like a killing if your stocks tumbled 20, 30 or 40 percent.