These are great times to buy a house, a car, or refinance a mortgage, because interest rates are so low. But for CD investors, low interest rates are hurting returns. If you are looking for some other options, we have them.
If your bank is offering you CD's that pay less than you'd like, Laura Bruce with Banrkate.com says the key is to shop around. You can go online to sites like Bankrate.com or read newspapers or magazines such as Barrons, to find CD's offering the highest rate of returns. There are several offering more than two percent currently on a one year CD. However, Bruce stresses that you should not lock in long term. She says, "We recommend, in an interest rate environment such as we're in now, that you stick to rather short-term. Don't go out more than one year. You don't want to get caught with a long-term CD when rates start to rise."
Money Market Accounts
While most are only paying about half a percent, you can do better if you hunt around. Once again, Bankrate.com has a list you can check out on its website.
If you simply need more interest and don't need the cash right away, I-bonds may be for you. They offer higher rates and protect you against inflation. Bruce says, "I-bond is composed of a fixed rate, which is steady for the entire amount of time you own that bond. And then, every six months, you get an adjustment to what's called an inflation rate." The I-bond is currently paying more than four and a half percent! But, if you sell it in less than five years, you're going to pay a three-month penalty. But, even then, in most cases you're doing better than the rates offered through CD's or money markets.
If the interest rate cuts hurt you and you don't like the options above, you do have some other alternatives.
OTHER OPTIONS TO CD'S
You buy them from insurance companies. Your earnings are tax deferred until withdrawn and interest rates are set for a designated time period.
Caution: Once invested, you have to stick with that annuity until you're 59 and a half, or you'll pay the price for taking money out early - a 10% tax penalty.
Experts say they can be a smart choice if they're from a good, solid company. It's essentially an 'IOU' that a corporation issues to the investing public. They will set the terms and it has a definite maturity date. Essentially, when your bond matures, you get your principal back, plus interest.
DID YOU KNOW?
The federal government backs CD's, but not corporate bonds and annuities. To minimize risk, find out the company's financial health.
You can do that by checking with rating services, such as Moody's and Standard and Poor's.
How much interest can you earn on your CD's? Click on bankrate.com who has a handy tool that'll help you find out.