hey there Tiffany Thomas with wealthy Tiffany dot com and in today's video we're
going to be talking about CDs certificates of deposit not compact
discs because who listens to CDs anymore okay maybe I have a couple in my car
still but you guys before we dive in and talk about CDs and what they are and
when you should be using them if you are ready for financial freedom right now
comment freedom below in the comments or just give me a random comment to help
out the YouTube algorithm so more people can see this video all right let's talk
about CDs and essentially what a CD is is a certificate of deposit essentially
it is an offer that banks or credit unions have where you can deposit a lump
sum of money and they will hold that money for you and pay you interest on
that money and that can be monthly or quarterly depending on how the CD is set
up but they give you a fixed rate they give you a fixed interest rate that they
are paying you so it's kind of a nice way if you want to rely on a certain
amount of income for your money that you're investing because with the stock
market it's going to go up and down if you're invested in stocks and it's a
little more risky and bonds if you're investing in a bond fund then the
interest rate will also change with that and depending on what's happening in the
economy and I can go down quite a bit or it could even come up but with CDs it's
a fixed rate and you were locked in for a certain timeframe which could be maybe
six months a year two years five years there's a whole bunch of different
offers that banks and credit unions have so depending on your needs for your
money you can choose a time frame that you're comfortable with to have your
money locked in at a bank or credit union and earning that certain amount of
interest every month or every quarter that's essentially what it is so this is
kind of just reducing risk that may be associated with other types of
investments that you could do and you know the amount that you're going to get
back for investing your money because it's a fixed interest
rate there's all different types of CDs and some of them will charge a penalty
if you withdraw that money early if you were to set up a CD for one year but you
decided in six months oh I need that money I want to withdraw it you can
withdraw it but there is going to be a penalty and usually it is the interest
that you would be earning on that money and it could be that interest for maybe
three months or a month it depends on how long your CD is set up for so that
will vary over time so you could pull your money out but be aware that there
is a an early withdrawal fee and some CDs are actually set up where there's no
early withdrawal fee but usually the interest rate that you would be earning
would be a little bit lower but just depending on what you want to do with
your money and how flexible you need that to be there are options out there
that do not charge that early withdrawal fee or penalty and rates vary so don't
just go to your local bank that you normally go to or your local credit
union and ask to ask to set up a CD you want to do some research online and look
and see who has the best rates for CDs because they're going to vary quite a
bit there are some at credit unions that may be 1% and then online they could be
two and a half percent that's quite a bit of difference
so really shop around and find which CDs have the best rates and also some of
them actually have the CD set up so you can withdraw the interest that you're
earning monthly or quarterly but not the principle that you've invested so if
that is something that you would want to do rather than just reinvesting that
money that you're earning you could pull that out so you want to shop around and
see which CD which bank or credit union is offering the CD that most aligns with
what you're looking for and I did a video earlier about bonds and bond funds
and I had mentioned in that video that it could be a good idea to and
and cds instead of bonds depending on your preference on what you're looking
for I wanted to share this article with you that I found online on the finance
bus and he had invested in a CD and he does a comparison with a bond fund
against his money that was invested in the CD and he did it over a period of
five years and what he found was the interest rate that he had on the CD was
three point zero four percent so each of the five years that's the amount that
he's earning that's the interest rate he's earning and he compared it to the
Vanguard total bond fund and in the first year earned five point eight nine
percent so quite a bit more than the three percent but then the second year
was only 0.4% and then it was two point six three point five six and then a
negative point zero three percent and then the overall average was two point
four six percent for the bond fund whereas his CD earned that consistent
3.04 percent so in this case it actually ended up being better for him to invest
in the CD rather in that bond fund and of course it's not always going to work
out like that but it is just kind of an option and the way you can think about
this is you can lock in a CD if there's one out there that's at a really good
interest rate you can lock that in for let's say five years and you have your
money in there and then when that money matures you can decide okay well CD
rates are still really high so I can invest that money in another CD or
they've gone down quite a bit so I'm gonna actually switch over and invest
that money in a bond fund so it's not like you're locked in for life and only
doing CDs or only a bond fund you can do one or the other or even both at the
same time just depending on your preference and how much risk you want to
have and if you think that the CD can outperform and I don't want you you know
making assumptions or gambling when you're investing your money right just
kind of think okay on average bonds have returned two percent up to four percent
after inflation so if you are finding a seedy that you know was maybe 3% then
that could possibly be a good investment instead of putting your money into bonds
because of that variation with investing in bonds and this way you're locked into
that 3% rate I don't actually know what the longest length is that you could
invest in a CD but I wouldn't do it for a super long time unless I wanted to
share this with you guys I remember when I was younger and I I had to have been
in my teens maybe like eighteen or something my credit union had a CD that
was seven percent interest and had I've known what I know now I would have put a
ton of more money into that CD and locked it in for as long as possible
because the guaranteed 7 percent return on your money is really good and of
course I've made more in stock so I wouldn't put all of my money in that but
that was such a good return and I didn't realize what I had right there
anyway the CDs are no longer quite that high you just want to consider alright I
could lock in my money for let's say three years at 3% and feel good about
that because I want to mitigate my risk and maybe you know I'm gonna start
withdrawing that money I'll be in retirement in a couple years so I'll
start withdrawing that money then so kind of you know look at your situation
and how flexible you can be with your money and and then decide okay this is a
pretty good interest rate on this CD I can lock that in for two years three
years and feel good about that and then I can you know come back when that CD
has matured and say okay well CDs have gone up in price and you know maybe I
want to put in my put my money in another one for another two years and
lock that in or if it's the opposite and they've gone down then you can say okay
I still want my money to be pretty secure pretty safe so I can put in a
bond fund and kind of have that varying interest rate but I think that would be
higher than a CD and keep in mind that you are
only insured and this is for most institutions you need to check with the
one that you select but most institutions will guarantee a $250,000
and so if you have any ton of money that you're going to be putting into a CD you
know you probably don't want to put in more than that FDIC insured amount to
keep your money safe because that's essentially what you're doing if you're
investing in CDs or buzz you are trying to mitigate that risk and you want a
safer investment so you don't want to go over that threshold and not have that
guarantee just in case something was to go wrong another reason you might be
investing in a CD is if you are saving for something in particular
maybe you want to buy a car in a couple of years or you want to put a down
payment on a house in a few years or take a really cool trip to Israel or
something you know whatever it is that you're working toward or maybe you just
really need help in not having that temptation of spending your money then
you can set up a CD for that specific purpose and you can you know save your
money that way so that you're not tempted to spend it on something else
instead of this goal that you want to be working toward and so you can put you
know your money in a CD have it locked in and realize there's that penalty if
you try to withdraw it early and it's also a safer investment so you're not
worried about losing money when you're ready to buy that house in two years or
ready to buy that car in three years so you have that money set aside and you've
earned some interest on it and you're not tempted to spend it elsewhere one
last point that I want to make is that you really want to shop around when you
are looking at CDs because some of the savings accounts out there especially
with online banks are actually higher than the rates and a CD and granted
savings rates can change over time but you don't want to be keeping your money
in something that's not going to be earning you enough entry
to make it worth it to lock it in for a certain timeframe when there's a savings
account that you can put your money into and make more interest by putting it in
the savings account and hopefully you're not tempted to take that money out of
that savings account hopefully it's at a separate institution
from your normal bank that you use all the time but you know keep that in mind
I actually had a friend that met with her financial adviser and had
recommended these certain CDs for her to put her money into and luckily she
talked to me before she did this because the rates that those CDs were returning
were a lot less than just a simple online savings account and I get the
fact that that is a locked rate but you don't really want to be locking your
money into like a 1% interest rate hour even a 1.5 interest rate because right
now a lot of the banks are returning around 1.9 percent in a savings account
and you really want to be careful with what you're putting your money into
because you know with that money you could actually put that into the bond
fund which would be a little more risky but you would probably earn more money
than putting it in a CD that's only worth 1% so being really careful and
shep around and see what the rates are on CDs and on savings accounts so that
you're not locking your money in for you know another five years at a 1% interest
rate and especially when you know interest rates might be on the rise you
know take that into consideration and really think ok is this going to be a
good investment for me right now or are the interest rates that banks are paying
are they on the rise so maybe I don't want to lock in all of this money at
this current rate really think about what would be the best possible
investment and there's a catch to that because you don't want to do too much
research and start to feel overwhelmed and then end up doing nothing with your
money and just leaving it in your drawer earning nothing
so you do want to take action but you know you can just set a timer
okay I'm gonna spend 15 minutes researching CDs and savings accounts see
what's the best and then just go with it so you still want to be taking action
but you don't want to go in blind so you want to be smart about it there's lots
of websites out there that will actually pull in a whole bunch of different CDs
from different banks or credit unions and you can look on just one website and
find you know multiple CDs and then pick the one that works best for you
so it's pretty simple to do some research in a short amount of time
hopefully this video was helpful in understanding CDs a little bit and
knowing what to look for in a CD and when you're investing your money as well
and if you found it helpful please hit the like button and share it with
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ideas about content you would like me to create for you please put that in the
comments below and if you already have a CD you're investing in or a really high
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