Should You Exchange Liquidity for the Best CD Rates?

Certificates of deposits can't be withdrawn from without penalties, so is it worth it to set up long term accounts for the best rates?

Certificates of deposits are by far on of the safest investments available. While they may not offer returns that are comparable to the stock market, there is virtually no risk involved. Cd rates are almost always higher than the interest that can be earned by a savings account, and they are competitive with treasury bonds. Some of the best rates are offered by certificates of deposit that have a longer maturity period. Money can't be withdrawn from the account before the maturity date without penalties, so is it worth it to invest in the best CD rates, or is it smarter to set up an account with lower rates and a sooner maturity date?

CD Rates and the Future

The biggest disadvantage of a certificates of deposit is the fact that the money can not be withdrawn before the maturity period without facing penalties. This means that it is often better to put emergency funds in a more liquid account such as a savings account. If you feel that there are enough funds in your savings account to protect you during an emergency, it might be worth it to invest in accounts with the best CD rates. There is one thing to take into consideration, however, which is the fact that CD rates change.

Certificates of Deposits and the Influence of the Economy

To be smart about CD rates, it is important to understand that they can change. While the best rates available now are almost always offered by longer term CDs, today's best rates can also be tomorrows worst. In most cases, the interest rates are fixed on CDs, which is good when the rates go down, and bad when they go up.

If it makes sense to think that the economy will improve in the near future, it may be a better idea to place money into shorter term certificates of deposits. This may mean that you will earn less interest in the short term, but the money will be available sooner to reinvest if economic changes take place.

Stacey Nelson

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