Expert: Paul Henneman - 1/21/2009

Question
I want to invest 7,000. I cannot risk to loose it because it is for my daughter's College fund. I have them on a CD but the interest has lowered a lot. Is there a better option for a safe investment than a CD? Thank you

Answer
Thank you for your question!
     Yes, you are right that the interest paid on safe investments such as CD's has really come down this past year.  Unfortunately there really are not many options these days for a truly safe investment other than a CD. You could look into a Money Market account, most banks offer these. This type of account functions like a savings account, but usually earns a little more interest. You may be able to find one with slightly higher interest rates than a CD, but not much.
    Keep in mind that inflation has dropped to just about zero. Your CD's should still earn a couple of percent, so it really is not as bad as it first appears. For example, a year or two ago you may have been able to get 5% interest on a CD, but inflation was over 3%. This means that the purchasing power of your money in that CD was really only growing at under 2%.
    Currently, you may not be getting much more than 2 or 3% on your CD's. But inflation is pretty much at zero, so again the purchasing power of your money is growing at about 2%, perhaps a little bit higher. Really the same situation, not as bad as it appears on first glance.

I hope that this helps! Please do not hesitate to follow up with me if I can be of any additional service,

Sincerely,
Paul Henneman
President
ValuEngine Inc
www.ValuEngine.com