Investing in short-term CDs is a safer option if there are uncertainties
Certificate of deposits are also better known as CDs. Although they are supposed to be the safest form of investment, there are a number of people who are still unsure if CDs are a worthwhile investment. Just like everything else, even CDs have their pros and cons. However, when you look at the larger perspective, you will realize that this is a much better option for those who wish to invest wisely.
Realistically speaking, CDs are a worthwhile investment as they are risk free and earn decent interest rates. However, the decision of investing in the CD will depend entirely on the situation you are in. if you have a substantial sum of money, which you want to invest, CDs are the best option. Since there is a lock-in period, you will have to decide if you can allow that amount to remain locked in until the date of maturity. If you are sure about that, then you can safely invest in a CD.
The best thing to do would be to invest part of the funds in a CD, instead of investing the entire money. Although you will lose access to your funds until the maturity date, you can still withdraw money early, in case you are in need. You will lose the interest you may have earned on your CD – that is the only thing that can happen. However, for those who make proper financial plans, this may not be a major issue. Ensure that you have enough money in your savings account, as you may require that amount to deal with some of the small emergencies that keep cropping up every now and then. If you are adequately insured against the bigger problems, CDs are certainly a worthwhile investment. However, should the need arise, you can always break the CD and you will only lose some or all of the interest. This is still better than ending up in a big debt because you couldn’t access your funds on time.
Most of these CDs have a fixed rate of interest. With the uncertainty in the economic situation this can have an impact on your CD. If the economy takes a turn for the worse, then the fixed interest will do a lot of good. Your funds will continue to grow even if every other investor is losing money in the other risky investments. In case the economy starts swinging upwards then, a fixed rate of interest will certainly not seem like a good thing. Investors always like to invest in long-term CDs because they are offered better interest rates, but a change in interest rates could have a serious impact on these CDs and they may start looking pitiful when compared to the new CDs. Placing money in a short-term CD or keeping it in a savings account would be a much better option if there is a likelihood of the economy taking an upward swing. The money may be kept in savings until the economy stabilizes once again.
