There are several common investment misconceptions about CDs that could prevent you from taking advantage of this safe, reliable investment vehicle. Once you understand how CDs work and what the possibilities are, you may find yourself rethinking this financial product.
CDs Donâ€™t Pay Out Enough
Many people scoff at CDs, saying the payout pales in comparison to other investment vehicles. However, when you compare the steady return CDs guarantee with the unpredictable ups and downs of the stock market, you may realize why slow and steady wins the race.
Take a look at your investment portfolio and evaluate your investments over the past couple years, during the economic downturn. How did you your stocks do? Mutual funds? A lot of people lost money, when those who invested in CDs made the same steady gains they always did.
This is because CDs guarantee a payout rate of a certain percentage over the course of the agreed-upon time frame. You may only get one percent back on short-term CDs, but you can get 2 percent or higher if you can invest for five years or longer. Make sure to lock in on CD rates when they are at a peak of a cycle, watching the news via websites that showcase CD rates so you know you are locking in your investment at a wise time.
CDs are for Ultra-Conservative Investors Only
Sure, the return rates are low, and the risks are almost zero with CDs, making CDs appealing to the most conservative of investors, but really, most financial advisors will suggest you add CDs to your investment portfolio to at least balance out your riskier investments. If you do any incredibly risky investing at all, it is wise to have at least some money put aside in a CD or two to keep it safely increasing in value as you play with the risky investments.
CDs Will Tie up Your Money for Too Long
You can invest in CDs for as short as six months and for as long as ten years, depending on what return rate of investment you desire. If you want a safe place to park some money for a short time, you can choose a short-term CD. Itâ€™s going to give you a better return than a savings account and will function much in the same way, as long as you know you wonâ€™t need that money during the time specified. As long as you choose a short enough time frame, you really shouldnâ€™t have any problems at all.
Make sure you donâ€™t let investment misconceptions about CDs cause you to miss out on this safe, reliable financial product.