Expert: Gina Boykin - 11/20/2007

Question
We recently lost my father to a heart attack. My mother (age 62) who works as a teacher's aide barely makes enough to get by. She has a $115,000.00 CD that matures in March 08. Should she reinvest this into another CD or is there a better strategy. I feel that she needs something that is safe and easy to liquidate if it is needed.

Answer
If you want something safe and easy to liquidate, you can stick with a plain money-market or savings account.  CD rates right now are not much higher than a savings account, if you chose an online bank.  The best place to compare rates on the internet is www.bankrate.com.  You will see that the rates for a jumbo CD (usually > $100,000 is considered jumbo) are actually the same or lower than a jumbo money-market/savings account.

Does she have any other investments, for long-term?  If her plans for this money are to use it as income 10-20 years from now, a savings account or CD does not provide the best return.  If there are no other retirement accounts (like a 403(b) or an IRA), then I would suggest splitting the money.  Save about 6-12 months of her income in the CD, MMA, or savings account.  The remaining amount should be invested in an index fund, exchange traded fund (ETF), or a money-market mutual fund.

An ETF is similar to a mutual fund.  It is a fund that owns a variety of stocks.  There is a commission when you purchase or sell ETFs just like stocks.  However, it has very low expenses, which offsets this commission if you don't plan to trade very often.  

An index fund is a mutual fund that follows a particular index (like the S