Before going further, let me cover how CDs work – and for those already in the know, “… just a lil’ patience” <— Axl Rose, GNR
The interest is paid periodically (i.e. monthly, semi-annually or at maturity).
The terms can vary depending on how long you are willing to lend the bank your money (i.e. 1-3 month, 6 month, 1 yr, 2yr, 3 yr, 5 yr, etc.)
Generally, CDs may renew automatically at maturity for the same term you initially selected unless you choose otherwise where you can withdraw your original amount.
Lastly, CDs are “FDIC insured” – where the Federal Deposit Insurance Corporation, an independent agency of Uncle Sam, protects the funds depositors place in banks and savings associations [i.e. up to $250k- you can reference the limits here: (https://www.fdic.gov/edie/fdic_info.html)].
FDIC insurance is backed by the “full faith and credit of the United States government.” Is that more than a punchline? Well, since the FDIC was first established in 1933, no depositor has lost a penny of FDIC-insured funds.
Sounds good right?
Well here’s my “KOBE (BEEF)” with CDs…
As they currently stand today, the interest rates are incredibly low and have been since the Sub-Prime Debacle of 2008. Having said that, why the heck would I loan my money to my bank only to earn around 1.5-1.7% – and I’m rounding up to be generous. To me, there’s just not enough financial incentive right now. Btw… (by the way <— inside joke! sorry!) that joke of a rate is only available if I am willing to loan my money for at least 3-4 years; and don’t even get me started about the current CD rates of anything under a year. Alternatively, “JUMBO CDs” may offer a higher interest rate (currently around 2.3-2.5%), but with minimum purchases costing 100x more than your standard CD, I’ll look elsewhere.
Perhaps a more compelling reason to look elsewhere is when you factor Inflation. Historically at around 2-2.5% annually -today’s interest earned from CDs are still not enough to outpace the rising cost of goods – the time may come when rates start to significantly increase (i.e. and how I miss those years when CDs were yielding 5%) but until then, some more patience yea? CDs according to you know who are just a F#$!@*N Disappointing Investment Choice.
(…. and how bout’ that Axl Rose reference!)