I am just getting started looking at investing some money I earned from the sale of my house, and it looks like short term CD's are paying the same or better than long term, or are the rates published assuming annual payouts?
2006-12-10 19:40:24 · 8 answers · asked by cynthia s 2 in Business & Finance ➔ Investing
Yes, and no, here's why.
Yes, if you renew the 3 month cd every time it comes up at 5 percent you make more with the 3 month cd in a years time.
Let's say you invest $1,000 @ 5 percent/year that comes to $50
But is you invest $1000 @ 5 percent for 3 months that's about $12.50. But here's the money making difference.....
When you renew the $1000 cd after the first 3 months it's now worth $1012.50 (because of the interest you've already earned.
Now your 2nd 3 months will earn you about $13.12 in interest.
Your other 2 renewals will earn you even more interest each time and you will come out about $3 ahead of the year cd.
One drawback is that if interest rates drop during that time period you won't be able to renew for the same 5 percent. Another drawback is that banks and other cd sellers almost always offer a higher percentage for longer terms.
Hope this helps
2006-12-10 22:00:59 · answer #1 · answered by mslider2 6 · 0⤊ 0⤋
No. If you buy 4 consecutive 3 mos CD's all at 5% you will get the same interest as a 1 year Cd at 5%
2006-12-11 13:40:10 · answer #2 · answered by hockey2525 2 · 0⤊ 0⤋
No, the return are proportional to the duration you have invested for.
Suppose the interest rate is 10 % per annum.
If you invest for 1 year $ 100, you get a retrun of $10.
If you invest $ 100 for 3 months you get a return of around $ 2.5
( since the duration was 1/4 th )
Actually you will earn lesser if you break up your investment into smaller duration because usually banks offer higher % of interest if duration of investement is longer.
2006-12-10 20:16:08 · answer #3 · answered by Pooja Bedi 3 · 0⤊ 0⤋
No, they are exactly the same. The amount of the interest is based on the amount of time they have the money times the interest rate. It all gets broken down to a number like .001369863013698 per day in earned interest and then multiplied times the actual number of days. So you see it comes out to the same amount of money earned. With the 3 month you have the opportunity to get a hold of your money without a penalty earlier. Good luck.
TB
2006-12-10 19:51:01 · answer #4 · answered by barkel76 4 · 0⤊ 0⤋
be careful with interior of sight monetary employer cd's. once they expire, you've 7 days to deliver them a letter telling them that you do not choose the cd to reinvest. it truly is going to reinvest at a very low-cost. See the trickery by banks the following? they received't settle for the letter on the monetary employer, it must be mailed in, and in those right 7 days. they'll take 6 months pastime once you spoil the cd after it reinvests. in case you want cd's that a lot evaluate constancy or Charles Schwab (i love schwab). Their cd's expire and do not reinvest. Schwab will educate you on-line the marketplace fee of your cd in case you choose to promote, from time to time you get extra. Banks will cost you 6 to 9 months pastime for a million 12 months cds. .
2016-11-25 20:19:22 · answer #5 · answered by wilcoxen 4 · 0⤊ 0⤋
No because if you had 1,000 $ at 5% at 3 months your APY (Annual Percentage Yield) is 4 times less then what it is because its not out of a year.
2006-12-10 23:03:16 · answer #6 · answered by italinfroboy 2 · 0⤊ 0⤋
It could with compounded interest
2006-12-10 19:47:50 · answer #7 · answered by Anonymous · 0⤊ 0⤋
No.
2006-12-11 08:01:41 · answer #8 · answered by Anonymous · 0⤊ 1⤋