Today’s topsy-turvy economy has investors panicked about their money. And with good reason, finding a safe place to park your cash can be a little bit difficult these days. I’m Kristin Arnold with your Bankrate.com Personal Finance Minute.
People with extra money they’d like to invest but are wary of stock market volatility can turn to fixed-income investments such as certificates of deposit. Though they’re not as exciting as the stock market, CDs can provide a stable, secure anchor with fairly steady returns.
CDs are considered safe investments. However, they do carry reinvestment risk — the risk that when interest rates fall, investors will earn less when they reinvest principal and interest in new CDs with lower rates. Another downside is that most won’t allow you to withdraw your money without a penalty.
Although CD returns often are higher than those of traditional savings accounts, it’s important to note that inflation and taxes could significantly erode the purchasing power of your money.
Risk tolerance and time horizon play big roles in deciding how much to allocate to fixed income investments such as CDs.
To learn more on stashing your cash in a safe spot, log onto Bankrate.com. I’m Kristin Arnold.
Recorded: Jan. 2, 2009