Quote:
Originally Posted by Shaze
if inflation is 4% per year and you only get 3% from your CD your money isn't making enough to cover yearly inflation rates so you lose 1%. think of it this way, buying a house 20 years ago compared to today is totally different. with $100,000 dollars you could buy a mansion in the past, but can barely buy a trailer home nowadays with that. that's inflation.
Here is the thing. if you don't plan on reinvesting or needing that money, and it is just going to sit in your savings account of 1% then a CD is better than just letting it sit in your savings account. CD's are a really low risk investment but don't give you much in return. I would try finding a money market account to put your money in. The rates online are the same or sometimes better than CD's and money market accounts are very liquid, they let you right checks and withdraw money without any penalties. Check out E-Trades money market account.
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Thanks. I actually do understand what inflation is, but not how it pertains to a CD. It's still hard to understand why it's possible not to earn any money with a CD if inflation goes up. If the CD is for 3.50% and I keep it in for a year I will make a small gain. How can it not make money if inflation rises during that same year? I'm still going to make interest off this money.