Reinvesting CDs? Be safe, not sorry

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Dear Dr. Don,
I have a certificate of deposit due to expire this month. I also have an account with GE Interest Plus. Is this a safe place to put my cash until interest rates are higher and I can get a better return? I need the extra monthly income as I am retired and living on a fixed income.
— Dick Depositor

Dear Dick,
An investment in a GE Interest Plus account is an investment in the senior, unsecured corporate debt of General Electric Capital Corp. The “senior” part means that the bond holders get paid off ahead of junior bond holders. The “unsecured” part means that the bonds don’t have any specific collateral (assets) backing the bonds. This investment is not insured by the Federal Deposit Insurance Corp., nor is it guaranteed under the FDIC’s Temporary Liquidity Guarantee Program, a program that provides FDIC insurance coverage for funds invested in noninterest-bearing transaction accounts.

The bottom line is that you can lose money in the account if GE Capital is unable to pay its debts.

Yields in the account vary based on the amount of money invested. Yields ranged from 1.11 percent to 1.31 percent in late July. Investors need to have $50,000 to $5 million invested to earn the higher yield.

Odds are you wouldn’t have an issue if you decided to invest the CD proceeds in this account, but I can’t recommend it because it isn’t guaranteed, and it concentrates your investment risk with the one firm. I don’t know how concentrated this risk is. But if the investment represents a large percentage of your personal wealth, you really don’t want to concentrate the investment with one firm.

You could use Bankrate’s “Compare Rates” feature and find an FDIC-insured, high-yield savings or money market account yielding 1.15 percent APY, which I found in late July. The same feature will also show you a one-year CD yielding 1.33 percent annual percentage yield. Stretch out to a two-year CD, and you can earn 1.5 percent APY. If you’re waiting for higher short-term interest rates, you aren’t likely to miss the boat with a one- or two-year investment horizon.

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