CDs versus savings accounts; which is better? If you look at the current rates of savings accounts, they really are a joke. Even the best savings accounts, which are mostly online-only savings accounts, do not pay more than a few cents on every hundred dollars annually. If people are going to save money for retirement, they would have to start with thousands of dollars to earn any real interest, and even then, interest rates on savings accounts do not adjust for inflation. 

CDs, on the other hand, make a better investment choice. This is especially true if you invest in short-term CDs with high-interest rates. Long-term CDs are okay, but again, you are competing with the rate of inflation, which does not slow down or drop, ever. There are other factors affecting CD interest rates, too, and you need to watch how these factors are influencing CD rates. 

Recessions

Recessions tend to cause CD rates to drop. Banks are hurting just as much as consumers when a recession happens, so banks cannot payout rates as high as they otherwise might. If the economy appears to be taking a slump, watch the CD rates. They may not fall quickly, but they will drop. If you see any offers for short-term CDs with higher interest rates, and they are being offered by a reputable bank, it behooves you to buy in while you can. If the CD and the high-interest rate is coming from a source that seems a little sketchy, especially with dozens of other banks' and credit unions' rates on CDs dropping steadily, beware. 

Banking Profits By Quarter

Many CDs are backed by the institutions that offer them. Higher interest rates may be offered when a bank or credit union has higher profits in a particular business quarter. Really, the only way to know that is to keep abreast of the bank's quarterly reports to the public, or if the bank/credit union trades publicly on the Exchange, to watch for elevations in their stocks. 

CDs Backed by Federal or State Programs

Like Roth IRAs, there are some CDs that are backed by state or federal programs. There may be some additional guarantees written into the contractual agreements for these CDs, and the extra guarantees may be very beneficial to you. It is important to read the fine print however before you sign and drop your hard cash on the banker's desk.

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