|
|
|
|
Research and Compare Hundreds of
CD-Type, Fixed and |
Questions?
Give us a Call |
|
|
| ||||||||||||
|
A Question of MaturityAt the end of 2002, a one-year certificate of deposit (CD) was paying 2 percent interest, and the rate on five-year CDs was about 3.6 percent. A survey of bankers and brokers found that 83 percent weren’t expecting an increase in long-term CD rates for at least a year; 17 percent expected rates to go even lower in the next 12 months; none expected them to rise.1 When
a CD matures, it can be tough to decide what to do with the cash while interest
rates are low. Some investors may want to consider other options until interest
rates become more appealing.Keep It in CDs If preservation of capital is the primary goal, buying another CD may be an appropriate strategy.2 However, investors are generally more likely to break even after taxes and inflation than see any real growth. Although higher interest rates are typically offered for longer terms, committing a substantial sum for several years can create a disadvantage when interest rates begin to rise. Divide It To retain some of the security of a CD but also pursue potentially higher returns, some investors may want to split the money between another CD and a mutual fund or similar vehicle with more aggressive investment objectives.3 Mutual fund shares can typically be redeemed at any time without the early withdrawal penalties associated with CDs, which may appeal to individuals who prefer to have access to cash in case of an emergency. Stocks and bonds typically seek greater growth opportunities than a CD. However, these investments carry considerably more risk, including the loss of principal, and should be considered carefully before investing. When a CD matures, it may be a good time to consider alternative strategies for the funds. Tying up cash for an entire year just to earn 2 percent can be frustrating and may even impede progress toward your long-term financial goals, depending on your risk tolerance. 1) Bankrate.com, December 2002; Bureau of Labor Statistics, November 2002 2) The FDIC insures CDs and bank savings accounts (up to $100,000 per institution), which generally provide a fixed rate of return. The return and principal value of an investment in stocks, bonds, and mutual funds fluctuate with changes in market conditions; when sold, these securities may be worth more or less than the original amount invested. 3) There are fees and expenses associated with investing in mutual funds, including portfolio management fees and expenses and sales charges. Mutual funds are sold by prospectus only. Be sure to read the prospectus carefully before deciding whether to invest. © 2002 Emerald Publications
|
Send email to
webmaster@annuityadvantage.com with
questions or comments about this web site.
|
|
