Are CDs a good investment to be making in 2010? The days of finding a high CD rate are gone, at least for a while, but that doesn’t mean that CDs have no place in your investment strategy. They are still the best yielding FDIC insured deposit account around. Rates for CD terms lower than a year aren’t worth much but 1 to 2 year CDs might be worth your time to look at.
3 year term CD rates are pretty good, but you should keep your money in a CD as long as interest rates as low. You should have your money available for when interest rates rise again. The time frame for this is anyone’s guess. The federal reserve said that they plan on keeping interest rates low for some time. Interest rates could start rising a year from now or it could be 2 years from now. Nobody is really sure when it will be. One strategy could be to invest in a 1 year CD and if interest rates are still low reinvest in one CD. If you’re confident rates aren’t going to rise for another 2-3 years then you should go ahead and invest in one of those options.
You should also setup a CD ladder between terms of 1 to 3 years. In other words you can setup a 1, 2, and 3 year CD. If rates rise in a year you can reinvest the 1 year CD into a longer term. If they don’t then you were smart to lock in a high CD rate for the 2 and 3 year CDs. It’s pretty much a win win.
Another option is to look out for CDs that allow you to use a one time rate boost on the accounts. So you could invest in a 3 year CD at a bank that allows you to match the current 3 year CD rate at any time. However, the only problem with these accounts is you don’t know how competitive they plan on making their 3 year CD in the future.