Investing for CDs: What Is The Best Type Of Investment?

Investing into CDs is a popular investment decision made my millions of people per year. While many choose to invest into CDs for the simplicity, there are several tips to consider implementing to increase your opportunities for success. Before you select a CD, consider these topics and concepts:

1. CD Maturity Dates- Be sure to ask the financial institution of when the CD matures. While this would seem like a fairly straightforward thing to ask when investing into CDs, it is commonly overlooked. In fact, it is best to ask the financial institution to provide you with the maturity date in writing so that you can log it into your records when you get home.
2. Callability- When investing into CDs, be sure to ask the financial institution about any possible call features. A call feature gives the CD issuer the opportunity to call the CD prior to its maturity. The advantages to the issuer are that they can refinance debt in a low interest rate economy. The advantage to the investor is that a callable CD rate will be higher than a non-callable CD.
3. Withdrawal Penalties- When investing into a CD, one of the most important things to inquire about is what the withdrawal penalty will be if any. Withdrawal penalties often apply when the investor chooses to liquidate the CD prior to its maturity date. Be sure to ask the financial institution about the penalty associated with your investment in the event that you withdrawal the investment from the CD.
4. Variable Interest Rates- While the interest rates are often stated and static throughout the entire duration of a CD, it is possible that they will change. This is most applicable for a variable rate CD and if you are considering investing into them, be sure to ask how and why the CD rate may change.
5. Stated Interest Rates- In addition to evaluating how the variable interest rate may apply, it is important to understand the basics of all other CD rates and how they will apply to you.
6. Compare Rates- Prior to investing into a CD, be sure to compare the CD rates between investment institutions. You will often find that institutions will be fairly competitive with their CD rates in order to attract investors. Compare CD rates in local banks, financial institutions and online in order to locate the best option for your investment needs.
7. Maturity Dates- Another significant decision that needs to be addressed when selecting CDs for your investment portfolio is the length of their maturities. While the rates are often higher for the longer term CDs, it is important to make sure that you will not need access to those funds during the duration of the investment.

While these are only a few of the tips and considerations an investor should evaluate prior to making an investment, they will provide the basis for understanding CDs, CD rates and how to select the best CDs for your investment portfolio.

A Look at Fixed Investments

Fixed investments are an important component of an investor’s portfolio, both while they are building wealth and while they are generating income from their investment portfolio. Some of the primary forms of fixed investments include fixed annuities, individual bonds, bond funds, CDs, and investment certificates and each of them fulfill an important role when developing an investment portfolio.

Fixed Annuities

The two primary forms of fixed annuities that are important to become familiar with are deferred fixed and immediate fixed. A deferred fixed annuity is one in which the investment value contributed into the annuity will grow on a taxed deferred basis over time, upon which a fixed payment stream will be designated at a later date. The withdrawal periods may be designated as 5 years, 10 years or even lifetime. An immediate annuity is a contract in which the investor will contribute an amount, upon which they will gain a fixed payment stream for the designated time frame immediately, unlike the deferred fixed annuity which will begin paying in the future.

Individual Bonds

A bond in its simplest terms is a debt instrument issued to raise capital for a corporation or organization. The bond will have a fixed payment rate, a payment date and a maturity when they are purchased. There are a variety of bond types, including municipal, international, corporate, and mortgage to name a few. Investors often purchase individual bonds as a way to generate current income or to provide stability within their portfolio. CDs are rated by individual agencies based upon their overall risk, making it easier for investors to select the best individual bonds for their investment objectives and risk tolerances.

Bond Funds

Bond funds are professionally managed funds, comprised of individual bond securities. Many investors turn to bond funds for their simplicity and their professional management. Bond funds, similar to individual bonds, can be found in virtually every asset class. This flexibility allows investors to build their ideal portfolio, in alignment with their personal financial goals and objectives.

CDs

A CD is a certificate of deposit, paying a fixed interest rate at its maturity to the owner. CD rates will often vary based upon their length to maturity, their issuers and the current interest rate market. In most cases, the CD rates for longer term CDs will be greater than those of CDs with shorter maturity dates. CDs are most commonly issued by banks and are insured by FDIC.

Investment Certificates of Deposit

In addition to traditional CDs offered by banks, there are also alternative forms of investment certificates offered by investment institutions. These certificates have an annual interest rate tied to things such as the S&P 500 Index, other indexes, or even a conglomeration of CDs that are put into what resembles a mutual fund. Investment certificates are attractive to investors who are interested in a cash investment with liquidity that pays a greater rate of interest or return than a standard CD, checking or savings account.