Is it safe to open a high yield CD account?

Question

I have $25,000 in a savings account that I would like to put in an account that can make some interest but want to make sure it is safe. My bank offers a high yield CD with short term (10 month) commitment required. They guarantee a 5% return. I am looking to put into the account for 2 years.

Answer 1

Short answer: Yes it is safe.

If you want more: 5% is an okay return, but I would be hesitant to lock up my money that long. If you ever need the money for anything (emergency, down payment, or whatever), you will have to pay a penalty to take it out.

My suggestion: Look into some good money market accounts. These are equally as safe as long as you are using a reputable bank or investment company. You can earn 5% + on your money, but will also have two other benefits: 1) You can take your money out at any time with no penalty and 2) if interest rates rise, your return will rise as well. In the CD you are stuck with only 5% for two years, even if interest rates rise.

I use the Paypal money market fund. It is currently earning 5.04%

Answer 2

It all depends on what type of return you want and your time horizon. A 5% return may seem good now, but it's about half the historical rate of return of stocks and you have reinvestment risk. That means you have the risk of not being able to get the same or higher return when the CD matures. Ten months from now, particularly if the Fed lowers rates, you may not be able to get that 5% again, and in a declining rate environment, stocks usually are the best asset class to own.

I would put the money in a money market mutual fund, most of all are yielding over 4.3% and are totally liquid, or maybe some T-Bills and invest in stocks if the market pulls back after all these recent highs.

Answer 3

I would say that buying a certificate of deposit from an FDIC insured depository institution is about as safe as you can get these days.

Federal Deposit Insurance Corporation (FDIC) insures that the United States government will replace an amount of money up to $100,000 per depositor per insured if the bank cannot return your deposit under its own power. This does not guarantee any interest for the period after the bank files the claim but at least your original investment will be safe.

Answer 4

Put it in for the 10 months. Not 2 years. It's never a good idea to have your money unavailable to you for that long. If the stock market crashes, you want to make sure that money is available to buy stock at firestorm prices. While everyone else is scrambling to recover the money they lost, you can use the money to clean up on typically solid investments like Microsoft, Dell, Google, etc.

Answer 5

If it where me, I would have placed it there already. That is a very good %age. You should know that almost all US banks have FDIC protection. Like you said, you are willing to place it there for 2 years. = 24months. The C.D. requires 10 months. If you have understood it right. ( Go for It)

Answer 6

If the account is insured by the FDIC it is safe. Ask the bank manager if this is the case.

Answer 7

That is a safe investment. You should also look to investment firms, such as Merrill Lynch, who can offer you an even higher percentage rate because of the wider market they deal in.

Answer 8

It is safe so long as the CD is FDIC insured. If the bank fails, the FDIC pays and is backed by the US gov't.

http://www.fdic.gov/deposit/deposits/insuringdeposits/index.html

Answer 9

Yes, CD's are covered by FDIC insurance.

Answer 10

Yes that's a very safe investment.