Originally published 1/23/06

Certificates of Deposit (CDs) no longer offer an attractive enough interest rate for it to be worth it. If you take a look at ING Direct's Orange CDs, you're looking at a 6 month commitment earning you a mere 4.15% APY compared to their regular rate of 4.0% APY on their Orange Savings account. So the difference in earned interest is $1.50 more for a CD when you lock it up for 6 months. If you're willing to lock it up for their longest time period, 5 years, the difference is $7 a year. (Since both rates are taxed as 1099-INT income, the difference in earnings is the same so we can ignore that mathematical step for simplicity's sake)

If you were to find the rates at PenFed (reddish pink box at the right), probably one of the most generous rates around for CDs, you'll see that a 6 month rate is 4% APY, no difference. Slide down to the 5-year CDs and the APY of 5.75% means a difference of $17.50 per year when your money is locked up for five years.

Are you willing to be paid an extra $17.50 a year to not really be able to get to your money? I'm not.

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