A Few Reasons Not To Invest Into Bank CDs

Posted on June 30, 2010
Filed Under Investment Bonds | Leave a Comment

I see it all the time, ads saying things like, “invest into our CD and make 2% a year”. Honestly most CDs just seem like a waste of time to me. They seem more like something that will prevent you from reaching your financial goals.

CDs may be safe, but it along with other investments that have “no risk” just seem like a bad idea to me for a few different reasons.

1. They Don’t Even Match Inflation

What I don’t get is why would somebody invest into something that is going to give them a return of 2% when inflation is 3-4%. That is a for sure way to lose buying power.

This is the equivalent to putting your money into a piggy bank with a small hole at the bottom. It will still grow as long as you put money into it, but a few coins will fall out of the bottom from time to time meaning you would be better off just putting it into a jar under your bed.

The minimum goal of any investment should be to break even. A better goal should be to make money. If you are making less then inflation 3-4% then you are losing buying power as time goes by.

2. Banks Invest

The reason that banks can afford to give you a guaranteed return is that they take your money and invest it into things like the stock market and give out loans. After they make the big bucks they send give you a small return for your money, which is only a very small amount of the profits that they made with it.

3. There are Better Investments Out There

There are a ton of investment options out there and not all of them are worth it. Compare something like a CD which might give you a 2% return to something like the stock market which can give you a much higher return. True stocks go up and down, but over the long term the yearly average stock market return has been about 10%. Now that is something worth getting.

For more information about the stock market visit Shaun’s site about the stock market basics Free reprint avaialable from: A Few Reasons Not To Invest Into Bank CDs.

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