What's a CD & Should I Buy One

I learned this as a young pup and it's very important. In finance speak, a CD is a certificate of deposit. You give a bank some money, they lock it up for a period of time (6 months - 5 years) and at the end of the lockup you get your money back with interest.

In the days before online banks, a CD wasn't the worst idea in the world. You got a higher rate of return than you would get in the bank and if you didn't need the money today, it was a great way to maximize your interest while keeping your money safe. CDs can't default.

But today, CDs are a terrible investment. Yes, this is a double entendre. Both music CDs and banking CDs are a terrible investment.

In 99% of scenarios CDs are a poor savings option. The only time a CD is the right move is if a client is incredibly wealthy, liquid, and can perfectly time the purchase of a long term CD prior to the next stock market collapse. The problem is, anyone who is wealthy and liquid enough to warrant the purchase of a CD has a multitude of superior investment options at their fingertips.

CDs do not make sense because they pay less than 1% more than the top online high yield savings accounts. But for that extra return, they lock up your money. If you need to remove your money early, you will be assessed a penalty that in many cases will be more than the interest the CD pays. For anyone thinking about a CD, I would instead recommend a combination of the following: high yield savings account, muni bonds/muni bond ETFs, short duration bonds/short duration bond ETFs.

#CertificateofDeposit #dogsteachfinance #investing #finance #banking

Featured Posts
Recent Posts
Search By Tags
No tags yet.
Follow Us
  • Facebook Basic Square
  • Twitter Basic Square
  • Google+ Basic Square

© 2021 GA Pincus Funds, LLC

Securities are offered through and held in custody at our custodian. Advisory services are offered through GA Pincus Funds LLC, a state Registered Investment Advisor firm registered in the State of Texas, New York, and Illinois. No information provided in this site is intended to constitute an offer to sell or a solicitation of an offer to buy shares of any security, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under securities laws of such jurisdiction. Past performance is not an indicator of future results. Past performance metrics include the reinvestment of dividends and interest.

Performance calculations are GIPS compliant.


Any data collected from site visitors is solely for the internal use of GA Pincus Funds, it is not disseminated or sold to outside parties. GA Pincus Funds can only do business with US citizens or US green card holders. A more detailed Privacy Policy is available upon request.