Average consumers tend to really like CDs. Certificates of deposit tend to be a form of saving that is widely understood, unlike some other kinds of bonds. They couple the coupon and maturity date aspect of savings bonds, but with a little less guesswork involved. The FDIC also guarantees CDs, which makes them very attractive to gun-shy investors. One could call CDs the “feel good” way of saving your money.
All that good feeling comes at a price, however. Lately, CD rates have been absolutely dreadful. The bad economy has kept rates in the gutter for the last few years, and there’s little to indicate that the trend will be experiencing a significant turnaround soon. Sure, you can guarantee the safety of your investment by picking a CD over a different means of saving… but do you really want to tie up your cash in a certificate that might only yield you a measly one or two percent? The lack of a decent return rate actually makes CDs kind of expensive, when you think about it.
That’s in addition to the fact that financial experts keep forecasting inflation in this country’s future, and inflation is frankly hell on CDs when the market is allowing for only tiny rates of return. The combination of inflation and a wimpy rate could mean that you actually end up losing money. Of course, the only alternative to CDs in terms of more yield is bonds – and that’s a daunting thought for the typical American without too much financial education.
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