CDs are Safe Investments
A Certificate of Deposit (CD), also known as a time deposit, is one of the most conservative forms of investment that you can make. In other words, it won’t earn a lot of money for you, but you can be sure that not only will you not lose money, but your money will grow at least a little. CDs earn more money with time, the longer you keep you money in a CD the more it will earn, not just because of the length of time, but because banks tend to give more favorable rates for longer investments. The drawback of the CD is that you need to have disposable income to invest. Putting money in a CD means that you can’t touch that money for the next 6 months to 10 years. Virtually every bank offers CDs, so if you plan on investing your money in CDs, you’ll have a lot of choices.
When you put your money in a CD, the bank takes the money and invests it in conservative investments like stocks, bonds and other modest yield, low risk investments. In effect the interest you earn is a “rental” fee on your money, the bank pays you for allowing them to earn off conservative investments. As the investments they make with your money are conservative, your earnings will not be high, but banks can guarantee a fixed amount of interest at the beginning of the term.
While longer terms usually mean better rates, this is by no means always the case. Sometimes banks in need of quick capital will raise interest on shorter term CDs. There is also no single bank that will consistently offer the best rates on the market. When you invest in a CD, you need to look at the different banks and their different products at the time you invest; to be sure you choose the best deal.
When your CD matures, you have the option to pull it out or roll it over for another term. By default, the CD will rollover for the same term you last put it in, and at the same rate. The bank will inform you that you CD has matured, then you have a few days to decide what to do with it. You may not want to roll it over, as the banks may be offering better products by that time, or maybe there are better products out there from other banks. On the other hand, if rates have dropped in general, and you have no need for the money, then rolling over is you best option, as you will probably get better rates.
CDs also make great collateral, no bank will refuse CDs as collateral because they are safe investments and they are as good as cash on maturity. In these times when loans are hard to come by, a CD could be just what you need to get a bank to throw you a lifeline. Banks offer very favorable interest rates on loans with CDs as collateral. In such cases, the bank most likely to give you loans at good rates, will be the bank in which you have your CD.
For the novice investor, ala Trump, CDs are a sure fire way to earn a bit of money, just make sure you compare interest rates from many banks and for many different terms before you commit. Plus, he is more into real estate anyways.