Are callable CD’s a sound short term investment?

Certificates of deposits are primarily chosen an investment plans depending upon the interest rates they pay. The best certificate of deposit lets the investor make the best profit in least time period. But the fluctuation in the market has lead to the development of many investment plans which protect both investors and the banks. One such investment plan is a callable certificate of deposit. Callable CDs are restricted by the fact that the authority to cancel them remains with the bank. Suppose the investor buys a callable CD at 10% interest rate. If the interest rates fall to 5% in the next three months while the CD is locked, then the bank will be at a loss because it still pays 10% interest rates. To avoid this, banks will foreclose the CD and pay the principal amount along with interest earned until that time.

In every other way, callable CD works exactly like other kinds of CDs. The investors cannot foreclose the CD when they want, and must pay a penalty is such an event occurs. If the interest rates fall, the banks will foreclose the CD, but if the interest rates rise, then the investor is at a loss, since the bank will still pay the low interest rates. Every bank will have a different clause for callback and different interest rates. So choosing the bank that gives the maximum interest rate and is tolerant towards slight interest changes is ideal.

Call back protection plan protects the investors from their CDs being cancelled by the banks. This protection plan lasts for six months up to a year. If during this time, interest rates fall, and the investor has a call back protection enabled, then the banks will have to pay the interest rates at which the CD was purchased.

Callable CDs are best investment plan for a short term. If they are purchased with call back protection, then the investor can reap the benefits of falling interest rates. But they do not work for a long term investment plan because if the interest rates rise, there is no way the investor can remove the CD and reinvest the money onto better paying CDs. Investing at the right time into the right investment plan is the key to making a good profit on savings. The right time to invest in the callback CD is when the interest rates are at an all time high. That way, if the protection is enabled, the investor makes the profit when the interest rates slowly begin to fall.