cds
Extra yield? You must work for it
Dear Dr. Don,
I have $20,000, which I am going to be using to start a remodel project in approximately six months. Should I invest this money to earn interest for that period of time? Or should I just leave it in a personal checking account?
-- Tony Timing
Dear Tony,
If you're fairly certain as to when the project will start, you don't need the liquidity of a checking account and could pick up some yield by investing the money. But how much effort are you willing to spend to pick up this yield?
The following chart shows rates of return on $20,000 using various types of investments. Assuming that a typical checking account might return about 0.35 percent right now, here's how other investments might compare.
Returns on various investments
|
| Personal checking account: | 0.35% | $ 35 | |
| Money market account ($10,000 minimum deposit)²: | 1.61% | $161 | $126 |
| Six-month CD (average)²: | 1.59% | $159 | $124 |
| Six-month CD (high yield)²: | 2.50% | $250 | $215 |
² Bankrate's "Your best interest report" March 11, 2009
On an after-tax basis, your yield pickup would be even less. So, it becomes a matter of how you value your time, what rates are available that are reasonably convenient for you to invest in and how important it is for you to bank locally.
For example, the high yield for the six-month CD is with GMAC Bank based in Midvale, Utah. I personally wouldn't have a problem in investing $20,000 in a six-month CD with this FDIC-insured institution, but there are people who wouldn't consider it.