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Why Mila Kunis, others stay in CDs

By Claes Bell · Bankrate.com
Monday, April 1, 2013
Posted: 4 pm ET

Certificates of deposit ain't what they used to be. Even at a minuscule 0.26 percent, one-year CD rates still don't show any sign of having hit rock bottom, and longer maturities don't look much better.

And yet there are still millions of Americans who continue faithfully stashing money in them, including "Black Swan" actress Mila Kunis, who recently advocated them in an interview with CNBC a few weeks ago.

"I'm an advocate of like -- put things in the bank, put it in a CD, lock it away, be safe, and I've been pushed kind of forward to take chances and I'm learning a little bit about the stock market," Kunis said.

The fact is, no matter how low yields get, there will still be people who stick with CDs. Here's are a few reasons why.

  • CDs are easy to understand. Even for investing novices, the economics of CDs are simple. Banks need money to lend, you give them money to lend, and then they pay you interest. No derivatives, no prospectuses, no financial advisers or brokers.
  • CDs cut down on doomsday scenarios. Most investments have some sort of a nightmare scenario that could cause investors to lose some or all of their principal -- debt default for bonds or bankruptcy for stock investors. But thanks to $250,000 worth of free insurance from the Federal Deposit Insurance Corp., or $500,000 for couples, CDs don't carry those same risks.
  • CDs are easy to compare. CD investors avoid much of the angst that goes with trying to choose between a whole universe of stocks, bonds and other securities. As long as it's FDIC-insured, all that's involved with picking the best CD is looking at their various rates and picking the highest one.
  • CDs are predictable. When you put money in a CD, you can predict to the penny the principal and interest you'll withdraw in a year. That's just not the case with the vast majority of investments.

What do you think? CD investors, why are you sticking with CDs?

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1 Comment
Bobo
April 01, 2013 at 11:46 pm

I have always used CD's as one leg of my three leg savings plan. I ran a stagger so as to not have the total hit a low interest time. I use 7 and 10 year terms and have a 5.7 APY renew next Dec and a 4.3 APY renew in Nov 2015. I have a feeling they might get renewed for a year or spent if interest rates have not recovered. I used them as my safety net, since any sane person would not invest any money in the market they were not willing to lose. So far I am happy with CD's over bonds as a safe haven.