Time Accounts (CDs)
 

I think I'm grossly misunderstanding the CDs (Certificates of Deposits). At first I didn't know what it stood for, but now I don't see why someone would invest in them.

Say, for example, I was offered a 4.11 APY CD. If I invested $1000, I would make .. $41.10 in a year? That seems like a horribly low return... am I missing something? Compounding interest or .. ?

EDIT: Just looked around, and found this post: http://www.tfproject.org/tfp/showpos...62&postcount=4

Is it this? By that math, I would make $1174.81 after 5 years? It still seems a bit low: I can make $174 in two days of work.. 5 ..YEARS?

it's compounded daily or quarterly I forget which.

it's alot better than savings accounts which is where most people put their liquid cash and safer than putting it into stocks which has a higher potential but greater risk.

CD's have their place. I have a CD Ladder for my emergency fund which matures every month so that if there is any emergency it's not long until there's a fresh CD to use if needed.

The interest rates will compound usually at a faster rate than annually - usually quarterly or monthly, depending on the product.

The reason people invest in them is because they are still fairly liquid, extraordinarily low risk, and often are used in "CD Ladders" - like Cynthetiq had mentioned.

Remember, as long as the FDIC or NCUA insures the institution you are working with, your money is guarenteed. Also, rates right now on CD's are near historic lows. They are better than they were a couple of years ago, but I have some 10 Year CD's that are at 23% Interest for the next year or so... Granted, I purchased them a long while back, but the market will return at some point.

Right now is an excellent time to borrow money, and unfortunately a poor time to have it as far as rates go....

WOW!!! 23%?? I'm just starting to shop for CD's and I get excited about my 4.68% APY 5 yr CD that I found. 23%! If only.....

If only.... rates were that high?

Don't worry, I'm sure they'll get there again - one thing I have learned in my relativley short life is that the economy always swings back and forth, and rates follow suit. They'll eventually get back to where they were - and at some point back to where they are now...

How long is anyone's guess - but take advantage of whatever situation you can...

I invested in 2 CD's a couple years ago and they matured just recently. I did TWO $2,000 CD's at ~5% interest and made ~$500 for each CD. I'm happy with my extra grand!!! Now I just gotta figure out how to reinvest my ~$5,000.