CD'S

From: DukeoW@aol.com
Subject: CD'S
Date: Mon, 26 Oct 1998 09:54:41 EST

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Date: Sat, 24 Oct 1998 17:39:44 EDT
From: DBlake9783@aol.com
Subject: Certificates of Deposit

I need some advice on investing via CDs.  I am totally inexperienced and need
adviceon starting out with them.

THANKS

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WHY do you want to "INVEST" in cd's???

Usually people use these for parking money for short term, protected against
everything except interest loss. But the rate of return is lousy. And its
taxed. Bankers love them, They get money cheap, for fixed term and lend it out
at 7-18% !!!  There are charges, lost interst in closing before due date,
changes are good only at maturity. When interest rates are high as in the
early REAGAN years, returns sounded good, inflation and taxes ate the earnings
up.

Have a real reason for a CD!!

Then look at alternates.  When we paid off our mortgage years back we started
a mutual account for taxes, upkkeep, trips etc. It was in a FULLY tax exempt
fund with TR Price.  Since we live in MD, it was the MD Tax exempt LONG term
fund. 

Returns have been in the area of 6.3% down now to about 5.4%.  But with the
multiplier for zero taxes it is more like 8.5% before tax rate. NO CD will
even come close. Since the odds are U don't live in MD, consider your own
state TE fund.

Advantages:   Withdraw at any time by check. Deposit at any time by any means
possible. Compound growth. No taxing and increase of gross and net income. 

Disadvantages. Some loss of capital if interst rates increase significantly,
taxed on capital gains on bonds sold by fund, if any. Rate is 20% since most
will be long term. Not insured by FDIC. 

Again ask why U want to by CD's.  If you have long term growth in mind, they
are losers. Any term over 3 years will nearly always make much more money in
an index fund from one of the two low cost no load funds familys. At 5 years
near zero risk of less return in indexes. 

Have you any other savings, investments etc?  Any other investment experience?

duke

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