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Certificates of Deposit (CDs) are basically short term bank accounts
that pay a specific interest rate for a specific period of time.
Withdrawals prior to the specified date result in a penalty.
When it comes to your short term money, Certificates of Deposit
are always going to give you the greatest rate available, if you
look around just a little. They often yield better rates because
they are not pure liquid and to some extent tie up your money with
the bank that you choose to purchase the certificate with. So as
an incentive, banks will offer better rates on Certificates of Deposit.
Interest rates on online savings accounts can in some cases hold
their own against the running CD rates. In the future, I expect
to see some form of paperless CD beginning to be offered that will
offer a steady CD rate that consistently beats online savings accounts.
In the meantime, what are we to do?
Here are some common signs that the rates will be falling and
you should lock in a rate by buying a CD:
1. The Fed announces two successive cuts in interest rates.
2. Inflation rates are really low.
3. When unemployment rates go up drastically.
4. When housing market sales are way down.
5. When retailers sales are down sharply for two consecutive quarters.
6. If the Gross National Product takes a hit.
7. Manufacturing industry reports bad numbers.
8. If inventories are up. This means people aren't buying things.
9. Oil or precious metal prices fall.
I usually wait until I see two of these events take place and then
I start looking for great CD rates.
Here are some common signs that keeping your money in an online
savings account is a good choice:
1. Consumer Price Index rises.
2. Durable goods orders rise.
3. Housing sales and the number of mortgages taken out rise.
4. Producer Price Index rises.
5. Retail sales rise.
When I see all of these things fall into place, CDs are a waste
of time because they lock up my money.
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