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CDs as an investment

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A safe, high yield investment can be hard to find in today’s economy. Typically, the investments that have been thought of a high earning do not have a lot of security. Very safe investments, however, are not yielding a lot in the way of returns. Fortunately, there are a few ways to get a good return from a safe investment.

Ladder CDs

No one believes that rates on CDs are high, but they are one of the safest investments available on the market. The highest rates on CDs are found on the ones with the longest terms, typically the seven and ten year versions. Of course, many people assume that this means keeping their money tied up for seven or ten years.

Fortunately, there is a way to take advantage of these high rates, as well as any future rate increases, by a process called laddering. In order to do this, divide the total amount of money you wish to invest into ten equal parts. Invest one of these parts into a ten year CD. Keep the rest of the money in the highest-interest savings account that you can find.

After a year, invest the second part of the money into another ten year CD. This will allow you to find a CD with a high interest rate. Keep in mind that it is possible that this CD will not be with the same bank. Repeat this process every year until all of the money is invested. At the end of this process, you will have own ten CDs.

Each CD you own will come due in a different year. As they come due, you can choose to use the money to pay for expenses, invest in a different way, or buy a new ten year CD. By repeating this process, you can take advantage of the highest interest rates that CDs can offer, but you will have access to at least a portion of your money once a year.

Municipal Bonds

Government bonds are typically thought of as safe investments, but federal bonds currently have some of the lowest interest rates available. Instead of federal bonds, take a long look at state and city bonds. Due to the recent defaults by some cities, rates on these bonds have increased. Many people have made a good return on their money by carefully selecting the bonds they invest in.

Of course, carefully look at the finances, as well as the financial predictions for each locality that you want to buy bonds from. High-risk areas, such as Florida and California are probably not very safe. Areas in Texas or North Dakota, however, are considered to be safe and likely to provide an investor with a good return on his or her money.



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