Safe Places for Your Money
A very common question these days: “I have some CDs up for renewal, where can I get a good CD rate and are there any other SAFE investments that I can use? I’m gun-shy since I lost a LOT in the stock market downturn.”
Folks are still scared of the stock market. It is quite understandable that they are a bit gun-shy after going through what is often described as the worst financial crisis since the Great Depression. While I wouldn’t want people to entirely give up on stocks for their longer-term investing needs, all of us need to have some of our money (emergency funds and short-term savings needs come to mind) in safe places.
CDs are time deposits, meaning that you agree to keep the money with the bank or credit union in exchange for a certain interest rate. While some CDs have variable rates, bump-up provisions, or even rates tied to the stock market, most are fixed-rate investments. Most that you’ll find also have FDIC or NCUA insurance, so that if the bank goes under, your CD will be guaranteed by the Federal Deposit Insurance Corporation or the National Credit Union Administration (more at www.fdic.gov and www.ncua.gov).
By “safe” most people mean that they can’t lose any money. So to stay “safe”, you need the two main features of most CDs: a guarantee that you’ll get your principal back and that the promise is backed in some way by the government (just in case the promise goes under). The products that meet these criteria, in addition to CDs, are savings accounts (including money market accounts), and government bonds.
To find the best rates on CDs (and savings accounts), a good place to start is www.bankrate.com. This website lists a broad range of CDs, checking, and savings accounts across the nation. You can select the length of maturity and whether you want national or local listings.
However, not every bank or credit union is listed on bankrate.com. Many locally owned and operated banks and credit unions in our area are not listed. So use bankrate.com to get an idea of what rates are out there, and then call your local institutions to see what rates they quote. Even if the out-of-town or Internet banks pay a little better than local ones, consider that local banks equal local jobs and a boost to the local economy. Getting an extra 1/10 of a percent by going out of the area only gains you $10 on a $10,000 investment.
Other than CDs or bank accounts, bonds are also a possible place to put money. The most well-known is the EE Savings Bond, but you might also consider Treasury Bills, Notes, and Bonds. To learn more about these, go to www.treasurydirect.gov. Bonds have and will change in value between when you buy them and when they mature, so if you have to cash out early, you might come out ahead, or way behind. (CDs have a built-in penalty for early withdrawal.) However, if you keep bonds to maturity, the government guarantees the face value of your Treasury bond. And as messed up as things are, they aren’t going out of business any time soon.
This article was published under the title "Finding Safety for Money"
in the Wichita Falls Times Record News on January 9, 2011.
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