A Few Reasons Not To Invest Into Bank CDs PDF Print E-mail
Written by Shaun Rosenberg   
Monday, 05 July 2010 15:27
I see ads all over the place which say things like, "invest into our CD and make a competative interest rate of 2% a year". How the heck is that competitive? I guess it is competitive to other banks, but not to other investments.
by ShaunRosenberg


I see ads all over the place which say things like, "invest into our CD and make a competative interest rate of 2% a year". How the heck is that competitive? I guess it is competitive to other banks, but not to other investments.

CDs and other ways to safely invest your money with "no risk" seem like a bad idea for 3 reasons.

1. They Don't Even Match Inflation

The thing I don't get is why would somebody want to invest their money into an account that will guarantee them a 2% annual return when inflation is at 3-4%?

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.

Breaking even should be the minimum requirement for every investment and that means it has to go up at least 3% a year, actually even more due to taxes.

2. Banks Invest

Basically when you invest your money into banks they take that money invest into the stock market, give out loans, and invest into other equities. After they have made a few dollars off of your money they throw you a 5 cent piece for letting them do that and most people think that this is actually a good idea.

3. So Many Better Investments

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.

DISCLAIMER: This article is provided as information only and is not to be taken as financial advice.

For more information about the stock market visit Shaun's site which teaches strategies about investing intostocks This article, A Few Reasons Not To Invest Into Bank CDs is released under a creative commons attribution licence.