The flip side to short term CDs

Certificate of deposits are the safest call you can make with respect to investments. You have the assurance of getting your money back along with the decent interest rate if you have invested it for quite long. There are many options even among CDs which vary in terms of duration and rates. Short term CDs are one such alternative which enable you to save for shorter lengths of time. Though you see your money grow even during this period, there are disadvantages of this scheme that you must weigh before you consider them.

They earn less

While you purchase a CD, you know that it is an investment. That money that you have invested is actually earning for you. In some cases, you can see the money double in a matter of days or months, but it is hard to ignore the risk involved in this kind of growth. Short term CDs undoubtedly earn lesser rates as compared to your long term CDs. When you decide to invest in short term CDs, you must ensure that you have reasoned it out well because you are actually letting go off other options as you invest in this.

They involve locking period

It feels good to have money in your pocket anytime you need it. You cannot simply count on your bank amount when you need cash to help you out of your situation. Unfortunately, investing in short term CD means you are letting that amount get locked for a certain period. You will have to plan your finances such that you do not bank on this amount till the maturity date. Such planning is hard to make since you cannot always predict an emergency. But having said this, you must also know that investing for short term is much better than letting your amount get locked for longer terms.

They involve a penalty

If there is a dire need that you have to withdraw the money from the CD much before its maturity date, you have to bear the penalty charges. This means you must forego certain amount from the amount which is anyway growing at a shorter pace. This is not very favorable when all you want is to see your money grow. So make a call whether you have to purchase a CD even for a short term or you are satisfied seeing the amount credited in your savings account.

Considering the rate of inflation, it is not wise to leave any amount idle for long. There is a need to constantly look around for attractive options to make your money work for you so your future is secure.  If your choice is only to secure your money, CDs are by far the best choice to make, but which CD will give you attractive returns in the time period you are ready to stay invested in it is the question that you have to address through your planning.

Short term CDs are attractive if you consider the advantages but you have to consider these disadvantages much before you invest your money into it.