Okay, I am dumb in the area of financial investing. I make a decent living for where I live, but not much compared to the national average. Credit is average and below, no bankruptcies, repos or defaults, just alot of lates. I have 2 kids and I want to start using my tax refund checks to use for their school, cars, emergency fund, etc. This year I got $5000 total filing joint. We need to use the money to pay-up bills, and do some minor work at house, but I dont want to spend the money and have nothing left. Banker recommended a cd, and then borrow against the amount. He explained everything to me, and it sounds good, but I dont know ANYTHING about this. The more help I can get here, the better off I will feel. Please answer in lamens terms. I am trying to do what is best for my kids and my financial future. If the cd is the way to go, we are wanting to do this every year from now on. Good Idea or what is better? Thanks much in advance!
2007-02-27 14:27:58 · 5 answers · asked by caraudioguy 2 in Business & Finance ➔ Personal Finance
First of all I would change yor banker because of his advise!!!
unless you need to build your credit DO NOT borrow money against money that you have. For the simplies reason:
Lets say that you opened a 12 month CD for 5,000 at 5% APY. After 1 year you will earn $250. Now you will use this 5,000 as collateral for a personal loan of 5,000. At the best scenerio your loan will have an intrest rate of 6% APR. That means that you will have to pay $300 in interest over time of 1 year.
That means that you will lose $50 during a period of 1 year.
The basic rule is to payoff all your debt as soon as possible. After that you may start saving money.
Hope this helped.
2007-02-27 16:16:33 · answer #1 · answered by Mirro 2 · 0⤊ 0⤋
I agree with Mirro and Joe S. The interest rate you pay on the loan is going to be higher than the interest you get on the CD, so you lose and the bank wins on that deal, which is probably why the banker thinks it's a good thing to do.
Saving is a great thing, but #1 priority is paying off debt. Pay whatever is charging the highest interest rate first. After you've paid off all debt (except the mortgage, that's actually "good debt"), then start saving. At that point, you shouldn't need to access the savings, so you can put it in CDs. Once you've saved a few thousand, then you really should consider a stock mutual fund. Stocks scare a lot of people because of the ups and downs, but over the long haul, they provide a much higher return than bank accounts, CDs, or bonds.
2007-02-28 07:34:15 · answer #2 · answered by Dave W 6 · 0⤊ 0⤋
Caraudiogyuy, I was in the same dilemma, and I found a savings account that paid just as much as the CD's, and the better part of it is, there was no minimum, no fees for making withdrawals, just take money in and out when needed !!
2007-02-27 23:59:41 · answer #3 · answered by musicman 5 · 0⤊ 0⤋
You would gain more intrest in a cd, buti f you put your money in a cd, you will not be able to take it out until your contract stops. If you take it out early, they will fine you alot. A savings account will allow you to take money out whenever you really need it, but it doesn't give you as much intrest. If you always have extra money, then i suggest putting it into a cd. If you find yourself coming up short on cash, then i suggest a savings account.
2007-02-27 22:35:42 · answer #4 · answered by highschooler needs help 2 · 0⤊ 0⤋
Pay off your bills. Putting the money in a CD and then borrowing against it is stupid. You lose money.
2007-02-27 22:41:35 · answer #5 · answered by joe s 6 · 0⤊ 0⤋