No one would consider certificates of deposits to be sweet investments.  CDs are definitely considered safe but not sweet.  Interest rate returns on CDs are tasting good this year.  Investors that saw this turmoil coming and took their investmnets out of the stock and endured the perceived bitterness in bank accounts are looking like they got the desert.

 

During these tough economic cycles there is an expected flight to quality as investors search out secure investment opportunities to keep their principal safe.  Common choices for safety with moderate returns are U.S. Treasury bills and notes. Treasuries are certainly a safe alternative, but their yields have become very slim.  However, those who want to receive a stable and desirable rate of return should still be looking at bank CDs.  Bank certificates of deposit along with bank money market accounts and savings accounts now receive the full faith and backing of the U.S. government through FDIC insurance up to $250,000.00 per account holder.  A nice increase in the sweetener of principal safety.

 

We are unquestionably in a recession, the credit mess will slowly thaw but our economy is not likely to rebound in the near future.  The weak economy and existing credit losses is bound to place continued pressure on banks.  With the likelihood of continued volatility in the financial markets investing more money or rolling over existing funds in in short-term certificates of deposit until markets rebound is a practical investment

choice. 

 

The banks need to shore up their balance sheets will surely result  in the continued practice of offering abnormally high Cd rates to attract investors.  And even while banks are now actively persuing deposit base growth, during more normal economic periods banks will try to increase additional business by offering somewhat higher rates to attract new customers.  The bank industry needs are applying forces that keep those short rates in the sweet spot, ripe for the taking by the knowledgeable investor.  Shopping for bank CD rates is not an activity just being performed by retirees looking for an incremental increase in rates. 

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