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Certificate of deposits are a very safe investment, but the best CD rates today may be the worst tomorrow if you aren't careful.

Certificate of deposits are some of the safest investments available. When money is placed into a certificate of deposit, you are guaranteed to receive interest back from the bank. The only exception would be if the bank were to go out of business, in which case you are still insured by up to $250,000 by the federal government. Even so, it is important to realize that there are different ways in which certificates of deposits determine there rates, and how the best CD rates today may not be the greatest tomorrow.

The first thing that is important to understand about certificate of deposits is the fact that there are different types. There are CDs with fixed interest rates, and CDs with variable interest rates. In the case of a CD with fixed interest rates, you will receive the same interest rate regardless of the behavior of the economy. In the case of a variable interest rate, there are several different scenarios. Generally, the interest rate of the variable CD will be tied to the primary interest rates. It is also possible to buy CDs with an interest rate that is tied to the behavior of an economic indicator such as the Fortune 500.

There are several circumstances in which a the best CD rates no longer look so appealing after time has passed. In the case of a fixed interest rate, a CD can start to look less beneficial if the primary interest rates start to go up. This means that new CDs will offer much better interest rates, and the fixed interest rate of the old CD can not be changed. In the case of a variable interest rate, what appeared to be an excellent interest rate can start to look less appealing if the economy takes a downward. Since a variable interest rate tracks the behavior of the economy, the return on the CD will drop with the behavior of the economy.

Depending on your needs, a CD can still be a good investment. Even in circumstances where once good interest rates start to look less favorable, the fact of the matter is that you will almost never lose any dollar amount when you take advantage of a CD. The only circumstance in which you would actually lose a dollar amount would be if the bank went out of business, and more than $250,000 was invested in the bank. It is possible to lose relative value through a CD as a result of inflation, but this is more true of savings accounts, checking accounts, and cash, and it is roughly the same for treasury bonds.