RandyAdams1978 wrote:.... ANY mix of stocks and bonds is too risky at this point, especially for my eldest child, who's only 4 years away from entering college.
RandyAdams1978 wrote:Well, the worst I could do is still have my initial investment, less the taxes I would have paid annually. I don't know what to do, frankly. A 5-year jumbo CD is paying 1.85% ANY mix of stocks and bonds is too risky at this point, especially for my eldest child, who's only 4 years away from entering college. The youngest is 10 years away, so theres a little wiggle room there. Not much, but with the youngest there's at least SOME time to recover from a bad year or two. For the oldest... not so much.
While most traditional CDs allow for early withdrawal after paying a penalty, most market-linked accounts do not.
With market-linked CDs, the formula for calculating the return may be extremely complex. Some banks will offer a return solely based on the performance of the market-linked index while others may also offer an additional minimal guaranteed return.
Start by looking at the disclosures for the CD. You should understand how a particular increase in the value of the underlying index during the full term of the CD, minus any fees (such as sales charges by a deposit broker), would translate into your actual return.
And look carefully at the terms for the CD. “You may find that your share of any uptick in an index will be limited to a certain percentage and subject to a maximum cap,” said Meron Wondwosen, an FDIC Consumer Affairs Specialist. “For example, it’s possible for the market index to increase by 25 percent but your actual return on the CD may be only 10 percent.”
Some market-linked and other long-term, high-yield CDs have “call” features in their contract giving the bank — not the depositor — the right to close the account early without paying a penalty. The bank is most likely to exercise this option when interest rates fall, which means a callable CD would limit your ability to lock in an attractive interest rate for a long time.
For example, a bank might decide to call for the early redemption of a 10-year CD after only a year or two if market rates on new CDs have dropped significantly. “You’d get back your money plus accrued interest, but your earnings will likely be less than if the CD had been held to maturity,” Wondwosen said. “Of course, you could turn around and purchase another CD, but most likely it will have a lower interest rate.”
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