CDs, for a Return Guarantee; The Certificates Are Safe, but They Can Also Tie Up Money
With the stock market whipping investors along gut-wrenching swings of 200 points or more in a day, the steady-as-she-goes FDIC-insured certificate of deposit has lately become an attractive shelter.</br></br>For Lisa Bend, the time to act came when she kept seeing reports that the Federal Reserve may soon lower interest rates, which could cause CD rates to drop. Wanting to lock in a good rate, Bend, 43, recently put a portion of her retirement savings into nine- and 12-month CDs from Internet bank ING Direct. She got an annual percentage yield, or APY, of 5.25.</br></br>"I had it sitting there, and I didn't know what to do," said Bend, who lives near Philadelphia. "I was looking at the stock market going up and down and up and down the past month."</br></br>A safe investment, surely, in volatile times. But there is a price to be paid for a guaranteed return. If you tie up your money for six months to a year or two, you could miss out if stock prices suddenly take off again.</br></br>So CDs, while a stable refuge, work most effectively as one component of a portfolio. Over the long term, stocks provide the best opportunity for your assets to grow. Historically, the U.S. stock market has offered investors annual returns averaging a little more than 10 percent if dividends are re-invested.