CDs and Long-term Investing
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CDs and Long-term Investing
There are two primary reasons that CDs are not appropriate for long-term investments:
Low Yield
Your yield on any investment is the return you make on your principal. When you compare CD rates you are looking for the rate that will give you the best yield on your investment principal. Since CD rates are so low, they offer a low yield compared to many other investments likes stocks and bonds. When you invest money over a long term, you should be looking for a yield that is comparable to both the length of time you invest the money and the risk tolerance you have. CD rates rarely offer a yield that is high enough.
Interest Rate Risk
The interest rates in CDs do not vary. Once you buy a CD it is for a fixed rate and term so even as interest rates are getting higher or lower in the real world (and in new CD issues) your CD's interest rate will remain the same. If you buy at the wrong time, that could mean you are stuck with a low interest rate that is not competitive with current rates for a very long term.
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