OK, the bank didn’t really rob me. This is, however, how a lot of people feel these days. Have you looked at the rates that banks are offering on certificates of deposits? They are almost not even worth the gas it takes to drive to the bank. There are really only a few cases where CD’s should be used.
The Numbers
Lets take a look at what CD’s are offering. The national average 12-month CD rate is .31% APY. That’s right, thirty-one hundredths of a percent. That equates to $31 for the year with $10,000 invested. Here is a quick chart of the national average CD rates.
| 1 month CD | .09 |
| 3 month CD | .13 |
| 6 month CD | .20 |
| 12 month CD | .31 |
| 24 month CD | .51 |
| 36 month CD | .70 |
| 48 month CD | .88 |
| 60 month CD | 1.15 |
What about special rates that banks offer you say. Lets take a look at a few of these so-called “special rates.â€Â The average special rate out of five banks that I looked at was .45% APY for 12-13 months. That equates to a whopping $45 for the year. That’s what I call making your money work hard for you. One of my favorite things to do is to monetize things. Therefore, I will drive a few more of these pathetic numbers into your head. Here’s a chart considering you invest $10,000 into different CD terms.
| CD Term | $ Earned |
| 3 month CD | $3.25 |
| 6 month CD | $10 |
| 12 month CD | $31 |
| 24 month CD | $102 |
| 36 month CD | $212 |
| 48 month CD | $358 |
| 60 month CD | $592 |
A Little History
CD’s haven’t always been as worthless they are now. In the late 70’s and early 80’s, CD rates reached 13.5%! That equates to about $1,357 on a 12 month CD opened with $10,000. I would be the happiest person in the world if rates were like this again. Heck we all would. Not everything was perfect when rates were that high, stagflation was causing havoc on the price of goods, and loan rates were around 16%. Those who had no loans and a lot of cash were doing well, very well. In the 90’s CD rates averaged in the 6% range. I would be happy with 6%. After Y2K, the average rate was around 4%, and after 2008 the rates plummeted to our current rates.
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When Are CD’s Right
Even with the pitiful CD rates, there are times when they are suitable to use.  CD’s should be used as short-term investments in order to earn a little interest on cash that will be used within a year or two. Examples would be if you plan on purchasing a car or a home. A CD will get you more interest than a savings and you know you won’t be using the funds for a while. CD’s can also be beneficial for the elderly, specifically those over 80. While it’s important for retirees to keep up with inflation, it is also important to preserve their principal.
Hopefully CD’s will once again earn decent interest rates. A lot of people rely on CD’s to try to keep up with inflation. For now, you just have to keep an open mind and find other options.