Investors in certificates of deposit (CD) continue to lose ground. Market Rates Insight reports that the interest investors earn on the highest paying CDs is now lower than the rate of inflation.
The rate on 5 year, callable CDs hit 2.4% in April, while the annual inflation rate ticked up to 3.16%. The result is a negative yield of 0.76%.
This drop in the real rate of return for CDs is not surprising. Shorter term CDs have carried negative inflation adjusted yields since late 2009.
CDs are often held by older and very conservative investors. They are perceived to be less risky than market-based investments.
It is true that there is little, if any, risk that investors in CDs will not receive their money back at the maturity of the CD. However, CDs do carry risk. The risk is that the investor will not be able to maintain purchasing power in the face of rising inflation.
Intelligent investors realize that risk comes in many forms. They also understand that there is no truly risk-free investment.
The rate on 5 year, callable CDs hit 2.4% in April, while the annual inflation rate ticked up to 3.16%. The result is a negative yield of 0.76%.
This drop in the real rate of return for CDs is not surprising. Shorter term CDs have carried negative inflation adjusted yields since late 2009.
CDs are often held by older and very conservative investors. They are perceived to be less risky than market-based investments.
It is true that there is little, if any, risk that investors in CDs will not receive their money back at the maturity of the CD. However, CDs do carry risk. The risk is that the investor will not be able to maintain purchasing power in the face of rising inflation.
Intelligent investors realize that risk comes in many forms. They also understand that there is no truly risk-free investment.
No comments:
Post a Comment