cds

Don't let jitters make you cash in CD

Don TaylorQuestionDear Dr. Don,
If I take $100,000 out of a certificate of deposit that matures in 2014, what is the penalty and how should I invest it -- silver, cigarettes, tissue, coffee, ammunition? My friend took out his savings yesterday to buy silver. I am so confused, I'm widowed and don't know what to do about managing my money.
-- Jumpy Jean

AnswerDear Jean,
Things may look bleak, but they're not so bleak that you have to go into survivalist mode and cash in your CD. The early withdrawal penalty on your CD maturing in 2014 could be substantial. Bankrate's 2010 CD early withdrawal penalty study can give you an idea, but giving your banker a call will let you know the exact penalty. The highest penalty I saw in the Bankrate study was $25 plus 3 percent of the amount withdrawn, or $3,025 if that was the penalty that applied to your CD.

I make a distinction between savings and investment. With savings, you're more concerned about keeping principal safe than you are in earning a yield. That your friend cashed in his savings to buy silver seems a tad extreme, regardless of how he does in the trade.

Are you a saver or an investor? I think there's room in almost every investor's portfolio for some speculative investments, but that percentage for most of us should be somewhere between 5 percent and 15 percent of our portfolio's value and erring on the smaller end of that range for the typical investor makes sense. Does the $100,000 represent 5 percent of your portfolio?

You didn't explain what gave you the jitters. It could be the low yield on savings. It could be the whole federal budget and debt ceiling debate. Heck, it could even be the outsized returns on silver over the past year.

Check your motivation for why you want to switch from saving to investing this $100,000. Don't decide to swing for the fences by piling your money into what's done well in the recent past because there's no guarantee that these investments will continue to outperform.

Bank CDs also are backed by the Federal Deposit Insurance Corp. up to $250,000, while many investments have no protection.

If you do want to invest, invest some time in finding an investment professional you can trust to help you manage your money. The Bankrate feature on financial planners can help you find that trusted adviser.

Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.

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To ask a question of Dr. Don, go to the "Ask the Experts" page and select one of these topics: "Financing a home," "Saving & Investing" or "Money." Read more Dr. Don columns for additional personal finance advice.
 

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.

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