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[N130]Negotiable Certificate Of Deposit

by Jason P. Jones, Jas

Are you one of the few who despite the financial turmoil has been able to save some cash? Do you have cash on hand because you sold the rest of your stock or mutual fund portfolio after watching it drop? If the answer is yes, I have one question for you, what are you going to do with it? With the stock markets down 40% or more, investing and making your savings grow has become a challenge. A safe investment for your money would be Certificates of Deposit or CD.

A CD is actually commonly called "time deposit". A certificate of deposit is somewhat similar to a regular saving account but with a twist. Unlike saving accounts, where you are free to withdraw anytime, Certificate of deposits have fixed terms.

There are tons of CD terms, 1 month to 3 months or more, some terms are as long as 10 years. During this time, you can't withdraw your money, but you are guaranteed to earn fixed interest rate that's much higher than a traditional savings account rate.

The rule of the thumb is, the longer the term, the higher the interest rate. Certificate of deposits are offered by banks, thrift institutions, and credit unions. Your deposit is safe as it is insured by FDIC up to $250,000 per depositor.

If you are planning to invest in a CD there are tons of online resources to find the best CD rate.

Here is a small sample of current CD rates.

1. You can earn 2.40% on your deposit for a 1 month CD. The minimum deposit is $10,000.

2. Another bank offers as much 4.27% for a 12 month CD. There is a $500 minimum deposit for this provider.

3. For a deposit of $10,000 in a 5 year CD, you can earn up to 5.02%.

4. A seven month Certificate of Deposit (CD) currently yields 4.11%. This special rate is a promotional online CD rate and the minimum opening balance is $5,000.”

5. GMAC Bank is offering a 3 month CD rate of 3.15% with an annual percentage yield of 3.25%. The rate is for balances of $500 or more. The penalty for early withdrawal for a 3 month certificate of deposit is 90 days of interest, basically all the interest you would have earned so be sure that you won't need your funds before locking in this CD.

All the rates above are posted http://www.monitorbankrates.com.

So be sure you won't need access to your money when you invest in a certificate of deposit. If you are unsure when you might need access to your fund it's better to invest in only short term CDs, like a 1 to 3 months CD, instead of a longer term CD.

Certificate of Deposits allow you to earn easy money without risking your hard earned savings. However, I have a piece of advise for you, since financial institutions require that you don't withdraw your money for the duration of the Certificate of deposit term, you must deposit only the amount that you won't need during the term's duration. Otherwise, instead of earning interest, you will lose some of your interest earned because banks charge a penalty for early withdrawal.

Equity-Linked Certificates of Deposit are a safer, low-cost alternative for those who must have an Equity-Indexed Annuity type of investment. These little-known investments allow you to participate in the growth of the market index while your principal is guaranteed by the Government. Read on to find out more.

Equity-Indexed Annuities are probably the most heavily promoted investment for seniors in today's marketplace. The sales pitch is appealing and the payoff to the agent is very big--up to 13%. The enormous commissions have led to sales abuses which leave seniors holding the bag.

Readers of this column have wised up to the flaws of Equity-Indexed Annuities. But what are the alternatives?

The best alternative to Equity-Indexed Annuities is to use a diversified mix of investments and strategies that can provide an income stream between 6% and 10% while limiting any risk of significant loss. That's what I do for my clients--without long-term time commitments or surrender penalties if they want access to their money.

Another alternative is called an Equity-Linked Certificate of Deposit. They provide virtually all the benefits that Equity-Indexed Annuities are designed to provide, without all the negative strings attached.

Equity-Linked Certificates of Deposit are offered by banks. They pay a return that is based on a stock market index, usually the S&P 500. Just like all Certificates of Deposit, they are federally insured by the FDIC up to $100,000 per individual. The minimum purchase for an Equity-Linked Certificate of Deposit is usually $25,000, but some can be found with $1000 minimums.

The return is based on the average performance of the S&P 500 over a set period of time. Just like Equity-Indexed Annuities, how the return is calculated depends on the issuer. The returns are all based on averaging the gains or losses of the index at set points over the life of your contract. Some Equity-Linked Certificates of Deposit guarantee a 3% return. Those doing so will limit the index return. Others provide 100% of the calculated index return.

The only way you can lose your principal with an Equity-Linked Certificate of Deposit is if you pull your money out before the end of the term. Most will have some form of a penalty, but since there wasn't a big commission paid to an agent to sell it, the redemption penalties should be small. (Some don't allow early redemption so investigate before you invest.) All allow early redemption without penalty if the account holder dies.

One of the major benefits Equity-Linked Certificates of Deposit have over Equity-Indexed Annuities is a short term commitment, FDIC insurance of principal, and much lower fees. They allows you much more control and flexibility.

For instance, let's say you intend to invest $75,000 in Equity-Linked Certificates of Deposit. Instead of putting all the money in a single CD, divide that money between three--purchasing one each year for three years. Then as one comes due you can roll it into another 3-year term. This will reduce the negative effects in how the index returns are calculated while giving you access to $25,000 every year.

There are several disadvantages to Equity-Linked CDs. They don't normally pay interest until maturity, so these investments are not a good choice of those looking for steady income. And like Equity-Indexed Annuities, you don't really get 100% of the market gains because of the averaging used in calculating the rate of return.

You may be wondering why you haven't heard of Equity-Linked Certificates of Deposit before. In fact, you should wonder why the advisor recommending you buy an Equity-Indexed Annuity hasn't recommended them! The reason is they don't pay a large commission so there isn't a financial incentive for the advisor to do so.

Check with your local bank to see if they offer Equity-Linked CDs. Not all do, but they are becoming more widespread. Any broker or advisor that can sell bonds should also have access to Equity-Linked CDs.

I still believe there are better ways to invest your money than Equity-Linked CDs. But I'd much rather see someone invest in them than an Equity-Indexed Annuity. Don't let advisors who stand to gain so much from your money pressure you into investing in an Equity-Indexed Annuity when an Equity-Linked CD is a much better alternative.

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Both Jason P. Jones & Jeffrey Voudrie are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.

Jason P. Jones has sinced written about articles on various topics from Finances, Finances and Make Money Online. Compare the (Certificate of Deposit Rates),. Jason P. Jones's top article generates over 14800 views. to your Favourites.

Jeffrey Voudrie has sinced written about articles on various topics from Financial Planning, Investments and Health Insurance. Nationally-syndicated financial columnist and Certified Financial Planner Jeffrey Voudrie provides personal, in-depth money management services and advice to select private clients throughout the USA. He will answer your financial question FREE at. Jeffrey Voudrie's top article generates over 165000 views. to your Favourites.