More Thoughts on Certificates of Deposit

Dec 25, 2007 by

In previous entries, I suggested that high-interest savings accounts were a good, more liquid alternative to certificates of deposit. While I am about to state the obvious, the problem with savings accounts is that they do not provide a locked-in rate of return, unlike certificates of deposit.

 If you have money that you plan on keeping illiquid for a defined period of time, it is probably wisest for you to try to predict whether the interest rate will increase or decrease over your time horizon. If you foresee the interest rate decreasing, buying a certificate of deposit will enable you to maintain a rate of return regardless of the decisions of Ben Bernanke. If you foresee the interest rate increasing, holding your money in a high-interest savings account will enable you to take advantage of the increase.

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1 Comment

  1. Damian Rodriguez

    I personally utilize a savings account instead of a CD I have access to my money at all times. The rates are very similar as well.

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