Have you been looking for a CD for investing your money? High interest rates may seem appealing, but are they really the best bet?
When looking for the best CD rates in your area, it is probably very tempting to find the bank with the highest rates and deposit your money there. However, this may not always be the best thing for you or your money.
Last week’s news of IndyMac’s financial problems has sparked at rush of people closing their accounts and pulling their money out of this popular financial institution. IndyMac’s stock has plummeted to almost zilch and customers are not happy about that. One of the main benefits that the bank was offering, however, was a high CD interest rate. In fact, it was one of the highest CD rates in the entire country!
IndyMac is just one example that the highest CD rates are not always better. Many times, banks will offer high interest rates in return for attracting new customers. But IndyMac isn’t the only one that has been known to do this. Countrywide did the same thing last year by offering one of the highest interest rates in California. Recently, however, Bank of America had to rescue Countrywide because they were hurting for money. The reason this happens so often is because some banks use the new money that comes in from the new CDs in order to pay off old debts or interest to other customers. It’s similar to the Ponzi scheme that Bernie Madoff is doing time for in the iron city.
Luckily, the majority of Americans investing their money in CDs do not have to worry about losing their shirts if the bank in which they have their money invested goes under. The FDIC, or Federal Deposit Insurance Corporation, insures the money up to $100,000 so if you have less than that invested in the bank, you should be protected. When the bank fails, the FDIC moves your money to another bank or financial institution where you still have access to it. One bad thing about that is that the new bank is not required to offer the original interest rate from the previous agreement. In those cases, you could be losing some money overall.
Another bad thing about investing in CDs through shaky banks is that the banks that need the money are not worried about paying out the interest rates. When the bank goes under, the FDIC uses the government’s money to cover those assets. That means the cost gets passed on to the taxpayers. If several banks fail within a short period of time, that could be disastrous to the economy over time.
There are two things to keep in mind if you find decent CD rates at a bank. For one, make sure the bank is FDIC insured so your money is protected. That’s most important. Also, use your judgment. If a bank’s CD interest rates seem too good to be true, they probably are. Look for a bank offering a rate that is more like the norm to keep you money in good shape.
Would you invest more money if the interest rates started to increase?
Who wouldn’t want a higher interest rate on their investments? Right now, there is only one federal official on the Federal Reserve calling for higher rates. His name is Thomas Hoenig and he is the president of the Kansas City Federal Reserve. He wants interest rates to go up gradually and he wants the rate at which the Federal Reserve lends money to the private bank to increase as well.
Interest rates for CDs, or certificates of deposit, have dropped dramatically in the last three years. In 2007, for instance, you could earn more than $5,000 annually when you invested $100,000 in a certificate of deposit. Today, you would only earn about $1,550 a year, or about 1.55 percent interest.
One of the main disadvantages of having such low interest rates for investments like CDs and other bank products is that nobody wants to deposit their money into one of these things. Savings accounts are even worse. Why would anyone want to invest in a savings account when they get such a small percent of return on their money? They wouldn’t. And that’s why Hoenig is fighting to raise the interest rates. He would prefer for interest rates to be closer to 3 or 4 percent right now. He is hoping that the Federal Reserve can start raising the interest rates fairly soon. He is proposing that the Feds raise it from nearly zero percent to 1 percent within the next six months. If more people start investing as a result of this increase, he proposes to move it up even more to where it should be.
If the Feds raise the interest rates, Hoenig believes the markets will begin to work better and banks will be more interested in making loans because they can get a good return from it. In addition, this would help stimulate a stagnate economy that has not seen too many exciting days lately.
Do you think something like this is going to be a good idea for the economy? Would you invest more money in certificates of deposit if CD rates went up? Or would you just rather buy goods and put the rest of the money in a savings account?
Are you afraid of investing your money? Here are some tips for making sure the money that you invest into your Certificate of Deposit will be safe.
People choose to refrain from investing their money and having it work for them for many reasons. One of the main reasons that people give for not investing is because they do not think it is a safe investment. Certificates of Deposit, or CDs, provide a safe way to keep your money while it earns interest. If you are still unsure about getting a CD to help your money grow, here are three ways to see if the CD you are choosing is safe and secure.
1. Check the FDIC Coverage
FDIC stand for Federal Deposit Insurance Coverage. Many banks and financial institutions have this type of coverage, which means that your money is insured by the federal government up to a certain amount. Typically, the amount is either $100,000 or $250,000, but check with your financial institution to be sure. This means that if the bank at which you have your CD fails or goes bankrupt, your money will still be safe. When a bank goes under financially, another bank often buys its assets. Your CD would then transfer to the new bank and the whole transaction would require very little (if any) action on your part.
2. Research the Financial Institution
Before you take out a CD with a particular financial institution, do your homework. Of course one of the first things you want to find out is which one is going to offer you the best interest rate for your money. Different banks offer different interest rates for their CDs so all banks are not the same. But in addition to finding the best rates, check the strength of the financial institution. Great interest rates does not always mean security for your money. There are websites that grade various institutions so you can feel more secure about where your money is going to go.
3. Find a Local Institution
You can find a wide variety of banks online that will offer great rates on CDs. However, there is a more secure feeling about being able to walk into your institution to talk to a teller in person about your Certificate of Deposit. That’s not to say that online banks or banks that aren’t local are not safe and secure because they are. But having a local branch provides a peace of mind that some people appreciate when they are investing their money.
CDs are safe ways to make your money work harder for you. If you can get past any hesitations you have concerning investing, it would definitely be beneficial to consider putting your money in Certificates of Deposit for great results.
BestCashCow is the most comprehensive bank rate site on the Internet. Since 2005, we have monitored savings account, money market account and Certificate of Deposit rates from over 8,000 banks and 7,700 credit unions to find and display the best offers for those looking to earn and save more. You can learn more about the company here.
BestCashCow is the most comprehensive bank rate site on the Internet. Since 2005, we have monitored savings account, money market account and Certificate of Deposit rates from over 8,000 banks and 7,700 credit unions to find and display the best offers for those looking to earn and save more. You can learn more about the company here.
