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Whether you are planning for retirement, setting up an emergency fund, or trying to preserve some of your capital, CDs can make a useful addition to your portfolio. But you have to be careful, and understand some of the pros and cons. That way, you’ll be able to use them in your plan in a way that is most beneficial to you. Advantages of CDs There are some advantages to using CDs in a number of scenarios. Many people like to use them for capital preservation purposes, as well as for emergency funds. Some even include CDs in an income portfolio to help them with passive income. Here are some of the reasons that CDs can be a wise choice when it comes to parking your cash: • CDs are safe: If you get your CDs through FDIC insured financial institutions, your money is safe. You do have to realize that there is a $250,000 limit on accounts at one bank (CDARS can be an option). With CDs, your money is safe if the bank fails. • Higher yield on cash: Cash is notoriously low when it comes to returns. However, with CDs you can usually get a better yield on your cash. With the promise that you will keep your money in the CD for a set period of time, you are offered a higher yield. • Set interest yield: Once you lock in, your interest yield is set for the term of the CD. So, if rates drop, you are protected. For those who don’t mind having their money locked up for a set period of time, CDs can be helpful. Disadvantages of CDs Of course, there is a con for every pro. This means that you will need to be prepared to offset some of the disadvantages of CDs. • Low interest yield: While some CD products can offer a yield that is high when you comparing to other cash products, the truth is that the yield is still low. You will not be able to build a solid retirement portfolio if CDs are your main strategy. • Penalties for early withdrawal: You have to realize that you are giving up a certain amount of liquidity when you put your money in CDs. If you withdraw your money early, you will have to pay an often hefty penalty. This can be disappointing, and erode the value of your investment. • Gains taxed as regular income: When you invest your money, your gains are taxed at special rates that might be lower than your current marginal rate. Income from interest earned on CDs, though, is taxed at your regular rate. And, even if you don’t receive a check for the interest earned in one year, you may still have to pay taxes on it. As you can see, it is important to weigh the advantages and disadvantages. You can benefit from including CDs in your plans so that you have a measure of safety and stability, but you need to make sure you aren’t too reliant on them to build wealth. In order to understand further regarding the Highest CD Rates, Current CD Rates, Best CD Rates, Bank CD Rates, best money saving options, TD Bank CD Rates, Chase CD Rates, Bank Rates and CD Rates, Check Out http://highestcdratesinfo.wordpress.com Article Source - http://www.highestcdratesinfo.com/cds-pros-and-cons/
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