Why Not to Invest Into Bank CDs

I see it all the time, ads saying things like, “invest into our CD and make 2% a year”. Honestly most CDs just seem like a waste of time to me. They seem more like something that will prevent you from reaching your financial goals.

CDs may be safe, but it along with other investments that have “no risk” just seem like a bad idea to me for a few different reasons.

1. They Don’t Match Inflation

What I don’t get is why would somebody invest into something that is going to give them a return of 2% when inflation is 3-4%. That is a for sure way to lose buying power.

This is the equivalent to putting your money into a piggy bank with a small hole at the bottom. It will still grow as long as you put money into it, but a few coins will fall out of the bottom from time to time meaning you would be better off just putting it into a jar under your bed.

Breaking even should be the minimum requirement for every investment and that means it has to go up at least 3% a year, actually even more due to taxes.

2. Banks Take Your Money and Invest It

Basically when you invest your money into banks they take that money invest into the stock market, give out loans, and invest into other equities. After they have made a few dollars off of your money they throw you a 5 cent piece for letting them do that and most people think that this is actually a good idea.

3. There are Better Investments Out There

The average stock market return is 10%. Now if you compare that with the average return from a “safe investment” which has trouble even keeping up with inflation you can tell there is something with the “safe investing mindset.” Investing does take risk, but it is better to know that you will probably make a high return if you do your research then to invest into something that you know you will lose buying power as time goes by.

For more information about the stock market visit Shaun’s site which teaches strategies about investing intostocks. Free reprint available from: Why Not to Invest Into Bank CDs.