Use Flexible CDs to Access Your Money Quickly
Since paying off our non-mortgage debt, my husband and I have been in accumulation mode. It’s definitely a lot more fun than debt pay-off mode! We are saving as much as we can every month by first setting aside an automatic withdrawal into our savings and retirement accounts and then by stashing any extra money away that we have at the end of the month. We are above the emergency fund level and have had some money to invest for awhile now. However, I have been keeping it sidelined.
I realize that we need to have our money work for us by investing it because it will (hopefully) allow us to increase our savings more quickly than our current method will allow. But there are two reasons why I haven’t jumped in yet. The first is because I believe the stock market is going to dip again. I am not an expert by any means, but I do watch the news and quite frankly, the world economy is not looking so hot. We are not insulated from Europe’s recession and even China’s economy is beginning to slow down. The second reason I have not jumped in yet is because Warren Buffett says you should buy low and sell high. I feel that if we were to purchase stocks right now we would be buying high versus if we wait it out for the potential lower stock prices to purchase.
Editor’s Note: If you share some of the same feelings and nervousness about investing in the stock market, you may want read some of the numerous investment articles at My Dollar Plan that will help you understand more about the stock market and investing for the long term. Here are some great ones to get started:
- Investment Advice for New College Graduates (and Beginners)
- 3 Ways to Safely Handle Stock Market Volatility
- The Overzealous Stock Market Operator
- 11 Reasons Why Investors Fail
- Should You Rebalance Your Portfolio or Let it Ride?
What to do in the Meantime?
I remember the glory days (circa 2005) when I was reaping a sweet 5% annual interest rate on my online savings account. I didn’t have much money at that time, but with a 5% interest rate I was still reaping the rewards of saving money. Ironically enough, now that I have a decent amount of money in that account I am earning less than 1%! I’m not ready to “buy high” just yet in the stock market (truth be told, I could be wrong about the stock market altogether), but I am also not happy at all with the less-than-1% rate of return.
Flexible Certificate of Deposits
I ran across a possibility the other day that I had previously not known about: flexible Certificate of Deposits (CDs). Typically a CD is very inflexible. You purchase a CD for a length of time and are guaranteed a certain rate of return. But flexible CDs offer just that: flexibility. Each has different terms/types of flexibility.
- Flexibility in Getting Out of the Contract: Some flexible CDs offer an out before maturation (and you keep the interest that you have earned up until that date). These are also called liquid CDs, risk free CDs, and access CDs.
- Flexibility in Changing the Interest Rate: Some flexible CDs offer the chance to bump your interest rate up once or twice during the period term in case CD interest rates increase. Ally Bank’s Raise Your Rate CD and CIT Bank’s Achiever CD are both options.
The Flexibility Trade-Off
Since these CDs offer such flexibility, there has to be a trade-off. The trade-off is that your interest rate earned will generally be less than if you had signed onto a traditional CD for a longer period of time. However, the rate could be better than what we are earning right now in our savings account. If I find a CD that allows us to get out of the contract to realize an opportunity in the stock market should my prediction and feelings pan out, then I will have earned better interest on our money in the meantime. Another option is looking at the bonus offer from Everbank for first time clients to earn more than 1%.
How do you feel about the stock market right now? Are you keeping money sidelined, and if so, where are you keeping it at?
Hmmm, trying to predict what the stock market will do. Really, who can do that? Certainly no one in short run. But over the long-term it’s a pretty safe bet that it will earn a rate that is greater than inflation. And that’s the key, you only want to invest money you don’t need for five or more years. So if it will be at least that long before you need your money, just invest it and don’t tip toe around. (Or if you’re a nervous Nellie, dollar cost average.) If you need the money in less than five years, than your CDs look like a great plan. Not sure when you’ll need it? Split it up.