Certificate of deposits, or CDs, are offered by banks as a way to attract additional deposits from customers in exchange for a higher yield. It works out for the banks because CDs have a fixed time period where there are penalties for early withdrawal, giving institutions a high confidence that the deposits can be used for lending. On the other hand, it works for customers as well because of the guaranteed (and often higher) interest rates.
Sounds great. Yet, it’s been a decade since I purchased one. Back then, I bought GICs (it stands for Guaranteed Investment Certificate, the equivalent of CDs in Canada) so technically, I have never purchased a CD before.
“But being FDIC insured, it’s covered up to $250,000.” I know I know, it’s got great rates as well, but I have instead opted for online savings accounts since it offers a similar yield. My reasoning was that since CDs are inflexible because it lock my money up.
I bet that turns some of you away from it too.
Inflexibility of a CD Isn’t Necessarily Bad
Being too flexible isn’t always good. Since I sold half of everything I invested in the stock market several weeks ago, I actually made more trades with my added purchasing power. Sure, the last few weeks were quite profitable but I found myself checking my stock performances and CNBC ALL THE TIME. Instead, I much rather be spending time on what’s more important like:
- Working on My Websites
- Spending Time with Emma
- Enjoying Life
Sometimes, not having access to your money isn’t always a bad thing. You won’t be spending as much, or more importantly, worry as much. Without the ability to overdraw your checking account into savings, you might even save more money. Funny how inflexibility can work in your favor…
Of course, you can always ask me to hold onto all your savings to get the same effect, but if you rather get some interest rates along the way, certificate of deposits might be the ticket.