Certificate of Deposit

Archive for October, 2008

Question: Certificate Of Deposit?

I just started looking at CD’s and was wondering how the APY works.

The one I’m looking at requires a minimum of $10,000 and if I were to choose a 60-Month CD Term, the APY is 3%.

Since APY is the Annual Percentage Yield, will I receive the 3% interest yearly, monthly, or only receive 3% for the entire 60-month term? If the answer is the ladder of question, the 60-month term, it doesn’t even sound worth it to me. Also since it’s a low-risk investment. :-/

I am looking at Chase banks CD’s

https://www.chase.com/ccp/index.jsp?pg_name=ccpmapp/individuals/cds/page/cds

There disclosure and terms are

https://apply.chase.com/oao/DisclosureRetriever.aspx?DI=aHR0cDovL2FwcGNvbnRlbnQuYmFua29uZS5uZXQvUlNJL0RlcG9zaXQvT0hfUlJfRU5HX1YyLmZkZg==

but I don’t really see anything about my question unless I missed something.

Answer: The short answer is that you should receive 3% of the balance per year for 5 years on whatever amount you decide to put into the CD.

Personally I wouldn’t be putting any money into a CD for longer than 3-6 months. The reason is because when you put your money into a CD, you are locking yourself into that interest rate for however long the CD is for, in this case 5 years. (unless you pay a penalty for withdrawing early) The problem with locking in interest rates now is that they are at historical lows, meaning that interest rates will likely rise in the near future as the economy improves. Also you won’t have your money available to you, unless you want to pay the penalty.

So a better solution would be to put your money into a high yield savings account. That way, the interest paid to you will increase as the market interest rates increase, and it will be easier to access those funds if necessary. Currently the rates on high yield savings/Money Market accounts don’t look like very attractive rates, but over the next five years, you will likely be much better off with the a high yield Money Market or savings account. Try websites like bankrate.com for help in finding one. I actually have an account with Capital One, and I have been pleased with it so far.

For more advice, please check out my blog, “Financial Advice for Men”: http://investmentlogics.blogspot.com

Compound Interest

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