Financial Planning

Investing in a CD is one of the safest places to keep your money. The one downside (especially in a recession) to this type of investment is the low rates of return typically offered. Because they are so secure, a certificate of deposit normally earns less interest than riskier investments like stocks.

There are a few ways an investor can try to maximize their earnings potential from a CD, especially if you find the best CD rates. Here are a few ideas.

• Jumbo CD’s – An alternative option to maximize your earnings is to look for jumbo certificates of deposit to invest in. Banks and other institutions may offer slightly better rates for investments over $100,000. Even an increase of .05% on a $100,000 investment would yield $50 more per year in interest. Jumbo CD’s are much more secure now as the FDIC will insure any deposits up to $250,000 which will cover these investments.

• CD Ladder – Building a CD ladder allows an investor to hedge against future interest rate changes. Instead of investing all your money into a single CD, a ladder can be created which splits the money equally across multiple deposit accounts. Each CD should expire in equal increments, such as every 12 months. As each account expires, the investor would reinvest the principal and interest back into another CD.

• Special CD Offers – Search for special CD rates that are sometimes offered by banks. These special promotions typically come with a much higher rate of return than common offerings from these organizations. Give your bank a call and ask if they are offering any special CD rates as these types of offers are typically not published.

Investors who don’t have the risk tolerance to put their money into stocks, bonds, or options need a high yield option. While a CD may not offer the highest return available, they do offer a guaranteed return backed by the FDIC. This stability is especially important in today’s uncertain global economy.

If you are looking to make a guaranteed return on an investment, I strongly urge you to consider investing in a certificate of deposit or an online savings account or even a Swiss bank account.