In good economies and bad economies, everyone wants to make as much money as they possibly can. More money means more choices, more security, and more freedom. When we make money we want to see that money work for us, so we invest it. Many people invest in certificates of deposit, or CDs. CDs are a type of promissory note, sold by banks and other kinds of financial institutions, that guarantee a return on our investment through an interest rate applied to the amount of the CD. This interest rate can vary over the life of the CD.
The interest rate on certificates of deposit used to be one fixed rate. That has changed, and now banks and other financial institutions which offer CDs are offering variable interest rates. Variable-rate CDs have their interest rates linked to such major interest rate indexes as the prime rate.
All the economic turmoil of late has led to major swings in the interest rates that banks and other lending institutions will offer on their variable-rate CDs. By investing into a variable-rate CD, therefore, you’re taking your chances on the return you’ll see. If you invest in a variable-rate CD you can really profit should interest rates move in your favor. If they move against your favor, you will see a much lower return on the investment. However, at the very least you will break even.
To learn more about variable-rate CDs, fixed-rate certificates of deposit, and other investment instruments and strategies, be sure to speak with a financial advisor. He or she will walk you through all your options to determine which investment vehicle is best for you. Maybe it will be a variable-rate CD, maybe it won’t – but you will be getting expert advice that could help you avoid any potential mistakes that could end up costing you your hard-earned money.