cdWith today’s dismal interest rates, even the best CDs (certificate of despot) are not worth the paperwork. I find it interesting that some people opt into Certificate of Deposits (CDs) as long term investments. Right now a CD is running right around 1% for a 12-month, if you get the most competitive rates. I’ve even seen local banks doing as low as .89% for a 12-month recently. The only way these CD’s would be worth the time of the paperwork is if you had a lot of money and you were terrified of absolutely everything.

I have to believe that with the recent downward trend of the stock market, many people are absolutely terrified of everything. Some savings accounts (note-ably Etrade.com) are offering .25% APY with no fees, since this is also a  0% risk return, you are effectively giving up the flexibility of your money for 12-months for a net of roughly .75%. A lot can change in 12-months. A lot of opportunities can come up both personally and investment wise in 12 months.

If anything interest rates on CDs confirm just how bad it really is out there in today’s market. If you really are so terrified that you will settle for 1% a year – it would also make sense that you would consider a 10-year bond at only 2.2% (As of 10/22/11).

What are the alternatives?
That is the question.

You could invest in commodities that tend to respond to inflation. Social security just got a 3.6% Cost of living adjustment, doesn’t that imply there is inflation? Maybe commodities are the way to go.

What about gold? Interesting thing about gold is there were decades with little  or no return. It was only since roughly the 70’s that gold has become so highly speculated. Gold had a rough time from 1990 to 2000 as well (better investments were available), but has since 2005 it seems like there is no end to gold’s Rally. But make no mistake – Gold is investment with risk.

Mutual Funds, put the responsibility in someone else’s hands. You could  hope that they have a return in excess of 1%. Considering some of these funds have hit 5-9% a year for most years out of the last few decades, it might not be unthinkable that even in a bad year they could exceed 1% rate of return.

Whatever the case, 1% CD’s are pretty terrifying to me.

Disclaimer: Always consult a professional financial adviser for your investments. This article is written on opinion, observation, and statement of fact and should not be used as your means of financial decision making.

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