A New CD in Town

Posted on

May 08, 2013

Book/Edition

Colorado - Northern Colorado

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Who would have ever thought a bank certificate of deposit would merit an entire article they are common as an old shoe, a bank product that a lot of retired folks have used for generations. Generally the only question to discuss is what's the rate?  But there's a newer generation of FDIC insured bank CDs to consider; the variable rate, market linked CDs. These are issued by federally charted U.S. banks and, have the same FDIC protection, but with a new twist we don't know the yield from year to year. That yield will never be negative (you cant lose money), but could be as low as zero for a given year and then in other years be in the 4 to 7% range.
For example, at the time of this printing the most recent declared yield was for the CD that had an anniversary on February 2013 - it paid a one year yield of 3.32%, and one year ago (Feb.2012) that same CD paid 5.78%. The average yield paid for the 12 months of 2012 was 3.21% . Finally some attractive FDIC insured yields!
I'm thrilled with this alternative said Steve a Fort Collins resident and retired forester. I've used CDs for years, but when my last group of certificates matured the bank offered me 0.5%. Obviously the banks don't want my money these days. The interest earned is paid out each year and generally cant be compounded into the existing CD. Other features include:
They can be set up for IRA or non IRA dollars
have no loads or costs to set up or maintain generally have minimums of $25,000
no risk of market loss, or a negative yield
are issued by very large, national or global banks
often have longer terms; more toward the 5 year range,
most have additional liquidity or access to your funds during the term, but vary somewhat from product to product

So before you renew that CD, contact a safe money specialist who can show you examples of this new CD in town.
Editors Note: This article was submitted by Greg W. Anderson CEA, of Balanced Financial Inc. He may be reached at 970-204-1500 or by email at andersongw@msn.com

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