Certificates of Deposit (CDs) - How Do They Compare to Other Investments?

CDs have good potential, IRA or 401k plans have better opportunities, but there is one investment that far out-weighs them all. After reading this article, you should have some understanding of the benefits each of these plans provide, and why CDs-though a solid investment strategy-could be the least in potential to all the others available.

As for the 401k options, there are 2 benefits to this plan:

1) You can commit your money to an interest bearing account before the taxes are taken from it. (This is the most beneficial to those who are in a high tax-bracket. But if you are in a low tax-bracket this feature might not be that good of an incentive.)

2) Your company may match your contributions, in most cases, up to 3%.

An IRA is similar to a 401k program except for the fact that your contributions will be after-tax only. And you will receive no company match. These plans are usually for those who do not have a 401k account available.

The benefit to this options is that once you start withdrawing the money when you retire, it is tax free because you already paid it. (If you are in a high tax bracket now, it would probably be better for you to pay the tax when you retire and you are in a lower tax bracket.)

CDs have their value in the security that they provide. But with interest rates as low as they are these days, a CD is just about the same as only not spending your money. Though the interest is better than what you could get with your regular savings account.

The best investment available can be for those who own a home or can buy a home and already have some equity in it. Why this is the best investment is for several reasons.

1) You do not need a large lump-sum of money up front, as you would with a CD to earn a significant amount of interest.

2) It is the only way you can some day-without moving back home with your parents or something similar-have a home to live in without having a mortgage or rent payment.

3) It is the only investment where you can quickly turn a liability into a saving deposit.

4) For those who do not make a large amount of money and do have a 401k plan available, owning a home can probably generate a much better retirement position than your 401k plan.

I hope you find this information helpful.

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