Are Certificate of Deposit Interest Rates Ever Going to Be More Favorable?

Certificate of deposit interest rates are at a low. As I write this article, interest rates at my credit union, who is normally much higher than traditional banks is only 1.50%. Is a certificate of deposit or CD a good investment right now?

The financial meltdown of 2008 has left all kinds of victims behind. The stock market investor who lost sometimes all of their investment, the homeowner who saw the value of their home reduced by more than half in some cases, and the small business owner who can no longer get a loan. These are only a few.

We can't forget about the fixed income investor. There are some investors who have saved their money for many years by using vehicles such as the CD. When certificate of deposit interest rates were more than 5% for longer term CDs, an investor who didn't want to try their hand at the stock market would simply buy a series of stacked CDs (CDs with varying mature dates so money was always available) and live off of the compounding 5% return.

Have you thought about how much money can be made with an annual rate of return of 5%? A lot of stock market investors aren't making that kind of return. Mutual funds often don't make that.

But let's look at the current problem. 5% is a healthy rate of return. Put $1,000,000 in a CD for 12 months at 5% interest and you're making $50,000 each year. That's not a bad yearly income. Sure, most of us don't have that kind of money to set aside for a CD, but for those who have saved for many decades, it's easily attainable.

When we do a little more math, we find that the same $1,000,000 CD with an interest rate of 2% is now only making $20,000 each year. That's a drastic change for the person who was living on the interest and let's not forget about everybody else who saw their returns cut in half.

With certificate of deposit interest rates so low, is now a good time to purchase a CD? If a fixed income investment like this is the only kind of investment you're comfortable with, then yes. Investing is a habit and staying in the habit is important. The other option available to you is to hire a financial advisor. They can give you some options that are just as safe but need a little more management.

For example, they could tell you about the covered call option where you basically rent your stocks to other investments. With very little work, that 1 million could be $250,000 in annual income! Because you are renting your stocks, you have a limited amount of risk and virtually no risk if you purchase good stocks that you're happy to hold for a long period of time.

Certificate of deposit interest rates will go back up but not any time soon. You might consider looking at other types of investments for now. It might just force you to try something different.

You can still make money by stacking CDs. Click here to learn how.

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