Question: Lately, I’ve been noticing lots of ads for CDs at various rates. What advice do you have to help me (and others) make a decision? What questions should we ask the financial institutions? How safe is our money? Many thanks. Anonymous. Gaithersburg , MD
Answer: Investors are putting more of their safe money into certificates of deposit. For one thing, so long as your investment is under $100,000 you’re money is backed by the FDIC. That’s a real relief in these turbulent financial times. For another, CD yields are on the rise. However, compare the after-tax return or yield on a CD to owning a comparable U.S. Treasury (which also has no default risk). Put your money where you get the higher after-tax yield.
One well-known place to check out CD rates around the country online is at www.bankrate.com.. When shopping for a CD make sure you understand the terms of the contract. Only put in money you can afford to lock up until maturity–6 months, 1 year, 2 years and so on. There are penalties if you need to get the money early.
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