After several years of languishing with poor returns, certificates of deposit or CDs are finding new life. When the Federal Reserve raised interest rates last year, it opened the door not just for banks to charge higher interest rates on loans, but for investors to reap higher benefits on investment vehicles tied to those rates. CDs have been returning only about one to one and a half percent in recent years, but rates are now reaching more than two percent, especially for longer-term CDs. The Fed is considering raising rates again later this year, which could provide even better returns. So is now a good time to get into CDs?
As Bankrate.com explains, investors should consider their personal financial objectives, time horizon and their tolerance for risk. If you invest in CDs, you'll get your principal and some interest back, but you could miss out on higher rates while your cash is tied up. Because rates may rise again soon, it may be useful to invest in shorter-term CDs for now, so the money can be re-invested at a higher level when rates change. The principal can be recycled and capital gains can be invested in other vehicles, such as stocks or bonds. Financial experts agree CDs should only be part of a balanced portfolio. And as always, it pays to shop around.
To help your listeners/viewers/readers learn more about the role of certificates of deposit in their overall investment strategy, talk with financial planners in your area. They can explain the different types of CDs and whether shorter or longer-term CDs would be helpful for investors in different life situations.
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