10 year CD–Are 10 year certificate of deposits worth it?
It is no secret that investing money in long-term investment ventures is one of the best ways to make money on investments. Long-term investments also have the best rates. For this reason, many people want to invest their money in 10-year CDs. The more money invested, the higher the return. CDs are currently offering rates that are lower than they were in previous years, but CDs are still a safe investment choice that does return gain to the investors.
How Does a 10 (Ten) Year Certificate of Deposit CD Work?
10-year CDs are an agreement between the investor and a financial institution to invest money for 10-years before withdrawing funds. Investors agree on particular interest rates for their investment for the 10-year term before locking in the deal. Once the investors receive the interest rates that they desire, the deal is complete once investors open the CDs. Investors agree to keep the money in the CDs for 10-years before withdrawing the money. If investors withdraw the money before the maturity date, the financial institution charges penalty fee on the CDs.
The penalty amount is usually a few months of interest, but the amount varies by financial institution. It is a good idea that investors negotiate the withdrawal penalties at the same time that they negotiate the interest rates. Although investors probably do not enter the agreement with the intention to withdraw the funds before the 10-year maturity date, but it is a good idea to have this safety measure in place to protect their money.
Advantages of a 10 (Ten) Year Certificate of Deposit CD
- It offers a stable rate of return. The interest rates on CDs have changed greatly over the past few decades. One thing that has not changed is that CDs are stable investment options. Investors may not always receive an enormous gain, but their investments do experience gain as long as the money remains in the CD until the maturity date. 10-year CDs are a much safer option than gambling with the stock market.
- It is a great option for laddering investments. 10 years is a long time to invest money in CDs. The best way to maximize the investment is to ladder the investment. Laddering investments allows investors to benefit from varying interest rates and varying terms. This type of investment scheme allows investors to gain access to a portion of their money at different times. For example, investors may choose to invest $20,000 in 1year, 2 year, 3 years, and 5years CDs. After 1 year, investors can choose to withdraw the money or roll it over into another CD option. The great thing about rolling the money over is that investors have the opportunity to benefit from a new set of rates and terms. If rates increase, they can benefit from the rate change.
Disadvantages of a 10 (Ten) Year Certificate of Deposit CD
- Investors may not benefit from rate changes. Investors have the option to request one rate change over the terms of their CDs. The length of time it takes the financial institution to put the rate in effect varies. Once investors have used the one time rate change option, they are locked in to that rate until the original maturity date of the CDs. If the investor uses the rate too early and the market rates increase, investors do not get the chance to benefit from any market increases until the maturity date of the CDs. Imagine what would happen if interest rates spiked to 15% as they did in the 1980’s. CDs with interest rate of 3% would stand to lose a great deal of interest.
- It ties up money for a long time. Investors should not invest money in 10 year CDs if they expect that they will need the money before the terms end. Tuition, mortgages, car payments, and other things that people invest their money in are not good reasons to withdraw money. Instead, investors should invest the money according to how soon they plan to invest it. For example, if investors plan to invest money in their children’s college tuition in 6 years, or if they plan to purchase a new home in 3 years, investing in 10 year CDs is not the best choice—especially if investors do not have additional money put aside for these financial responsibilities.
10 year CDs can be a great investment for investors who have money that they do not plan to spend until after the maturity date. 10 year CDs can earn investors a hefty sum of money over time. Investors must do their research and determine how soon they plan to use the money before making a decision.