Are CD's a good idea?

[LuluLovesDisney]

My local bank and ING are both advertising CD's. My local bank is advertising a 6 month CD at 5 % interest. ING offers a 12 month CD at 5.25% interest. I am considering transferring some savings to one of these. I am saving for my wedding and a house (hopefully in the next few years). Is this a good idea?

 

[coolbeans]

CD's are a great way to earn a higher rate of interest, as long as you are sure you won't need to access the cash before it's mature. If you break the term of the cd you could lose money from your initial investment!!

 

[disneysteve]

My local bank and ING are both advertising CD's. My local bank is advertising a 6 month CD at 5 % interest. ING offers a 12 month CD at 5.25% interest.

I think a CD is perfectly fine for your needs, but I wouldn't go with either of the choices you gave. You local bank will probably never have the best rate and ING has not been competitive for quite some time, including with their savings account rate.

Go to bankrate.com and you can find the best rates nationwide. Currently, they are listing a 6-month CD with APY of 5.49% and a 12-month at 5.68%. Personally, in the current interest rate environment, I wouldn't tie up my money for much more than 6 months, maybe 9, as rates are still creeping up. The difference between that 6-month and 12-month rate is quite small.

 

[disneysteve]

If you break the term of the cd you could lose money from your initial investment!!

This isn't generally true (though it might be in certain cases). If you withdraw a CD early, there is usually an interest penalty, so that you don't get all the interest you were entitled to. You don't lose principal. Just an FYI.