I know it is a little long and somewhat technical but it is really worth a read.  I hope you get the point that to days economic environment has created the possibility that bubbles will come more quickly and from many sources.   This isn't like 1929 (Depression Era) that was followed by a long period of growth.  We are in a whole new situation and need to think about how we react.

One term mentioned several times in this article is "herd" mentality.  We saw that with the "tech" bubble and the "housing" bubble.  What we are also seeing every day is the wild swings in the markets based on a tid-bit of news.  It seems that every day it is get into this, or out of it.

I'm not going to even pretend that I know what is going to happen with the market.  What I do know is that we need to take control of our investment decisions using thing we can understand, not some derivative.

If we want to plan for retirement then we need to be able to say that if I put this much into this investment it will earn this much money over a period of time, and I will have this much more at the end.  Not, if I invest this much I might have that much.  We are not playing the lottery folks.  This is your retirement we are talking about.

If you don't understand the markets then find a secure way to invest.  This site talks about CD's at financial institutions.  They are insured by the federal government and earn interest every day.  You won't loose what you put in, and you will know what you will have at the end of the CD term.  I know it is not glamours and won't get you a high return on your investment like Bernie Maddof promised.  Howerver, if you take the long view, you will know where you are going and what you will have when you get there.

Let me know what you think.  Thanks.

If your at, or nearing retirement and want to take the risk out of your retirement portfolio then consider investing in bank/credit union Certificates of Deposits (CD).

This site, and blog are designed to try and help the unsophisticated investor take advantage of a federally insured investment option.  You can protect every penny that you have and earn a small return on your money.  By using some of the tips in this site you can improve those earnings.

Please search through the material.  I have tried to be as clear as possible, however, if you have a question please feel free to post it.  I will responde as I can.

Membership in the credit union is open to anyone.  This is different from most other credit unions that have a specific industry(s) or geographic areas that they serve.  It doesn't matter were you live or work.

They also have a  5 star rating from www.bauerfinancial.com which is the best you can get.

Rolling a maturing CD to them was a simple process requiring an IRA application, a beneficiary designation and an investment selection.  Got a check from the old holder of the IRA CD made payable to Melrose FBO IRA (my name) and sent it to Melrose.

If you don't need to physically go to the bank, this might be a good institution to do your banking through.

Appreciate any feedback on this credit union.

Series EE Bonds earn .7% interest.  You can probably do better with a bank CD or Money Market account.  Maybe even a savings account.

By establishing an "opt-out" approach to participation in company sponsored 401(k) plans, the President is forcing you to take action to not have money from your pay check contributed to a company sponsored retirement plan.  There are lots of advantages to participating in a 401(k) plan.  You are saving pre-tax dollars (you don't pay taxes on the money you save when you save it).  

However, you are usually offered a limited set of investment choices as selected by your plan (employer).  These usually include a variety of mutual funds and a money marketmutual fund.  Seldom does it include investments in bank CD's.

Why is that important?  With mutual funds you are investing in the stock market.  Thus you are subject to the whims of the market and the expertise of the portfolio manager. 

You won't have the security of a government insured CD that can be obtained from a bank.  As far a I know, only one 401(k) plan administrator offers CD's as an option in a 401(k) portfolio.  That is Pentegra.  Funny thing is they were originally set up to handle the 401(k) accounts of the Federal Home Loan Banks in 1943.  Maybe they knew that CD's were a more secure investment than anything else.

The point of this commentary is that if you are encouraged to join a 401(k) plan then press your employer to provide one that offers a safe and secure investment alternative, such as CD's.

If your over 59 1/2 years old you can also ask if your 401(k) plan allows withdrawals over this age.  These can be taken without penalty as long as the funds are then moved into a traditional IRA.  The IRA will now allow you to invest in federally insured CD's and remove the risk of principle loss to a volatile market.

Got a package of material back yesterday.  Included IRA application and CD purchase form.  On the 12th, when my other CD matures will send in forms to open the CD.

One big surprise is the penalties for early withdrawal from any CD product offered by Melrose CU.  Three months interest on anything 1 year or less, and 6 months interest on anything over 12 months.  The interesting thing is that in both cases the interest rate on the CD then drops to 1.5% for the remainder of the term.  Pretty tough penalty. 

Have not seen this harsh a penalty before.  Suspect it is legal since it is disclosed clearly up front.

The reason I am looking at a 5 year CD is because I built a ladder starting in the fall of 2007.  A piece of it matured several weeks ago and I was able to get 3.75% at Mechanic's Cooperative Bank in Taunton, Mass.  This next piece that matures on 9/12 will probably go to Melrose Credit Union.  Their financial statement is on their website and looks very strong.

Two more examples of small institutions offering better rates than the big guys.

Check back in a couple of weeks to see how I made out.  Also, would appreciate any feedback from those who have done business with Melrose CU.

Lesson learned, ask and maybe you shall receive.

The risks associated with investing in CD's are different than the risks of most other types of investments but it is best to understand them before moving forward. The first risk is that you are committing your principle into the banks care for a specific period of time. The amount of time is selected by you, but the bank expects to have your money for the full term you have selected. If you want, or need your money sooner there is a potential penalty that you must pay. This penalty can possibly cost you some of the original amount you gave the bank or credit union (see Types of CD penalties). There are ways to minimize the possibility of loss from this situation that you should consider (see Minimize CD penalties).

There is also the risk that the interest you will earn on the CD will not be as much as you might earn in the stock market through a mutual fund or direct stock investment. When the stock market is strong the earnings potential usually exceeds the rates that banks are willing to pay for CD deposits. When you make a commitment to a CD for a specific term and amount you cannot take advantage of higher future CD rates until your current CD matures (reaches the end of the time you agreed to keep it on deposit). This means you might be kept from taking advantage of higher interest rates in the future. To give yourself greater flexibility sees "What is laddering of CD's".

Another risk of investing in a CD is that you might need some of the money for an emergency and now it is tied up at the bank/credit union. The possibility of this becoming a problem and causing you to incur penalties can be minimized by taking a few simple steps (see Minimize CD penalties).

The only other risk that you might face is that the bank/credit union in which you have made your deposit "fails" and is taken over by a government agency or another bank. If your bank is taken over by another bank they must honor the terms of your original agreement. There is little or no risk in this situation. Make sure to keep all your paperwork ready should this possibility arise. If your bank/credit union is taken over by a government agency (FDIC or NCUA) then your deposits are insured with some exceptions (see Federal Deposit Insurance and Other insurance under CD Rates & Insurance).

For an example we will use a ficticious 2 year CD offer of 3%.  During the life of the CD the bank has the option to end the CD, usually on the anniversary date.  In our case that would be at the end of the first year.  Thus your 2 year CD could become a 1 year CD, at the banks discretion.

Why is the bank doing this?  The bank thinks that rates may go up to more than 3% at the end of the first year, but they are not 100% confident in that opinion.  If rates do go up above 3% after the first year they will let you keep the CD, since it cost them less than paying the new higher rates.  But, if rates don't go above 3% and stay at 2.75% (for example) they can call the CD and not have to continue paying more than the market rates.

So to summarize.  With a Callable CD if rates go up you lose because you keep getting a rate that is lower than market.  And if rates go down you lose if the bank calls the CD and you no longer get the higher rate.  The decision by the bank to call the CD will not be made with your best interest in mind.

Suggest you consider laddering which puts the decisions and control in your court.

Again I would appreciate your feedback.

For example, Mechanics Cooperative Bank, Taunton, MA offered a 3.75% APY on a 5 year CD in early August, 2009.

Let me know if you have found similar opportunities in your local communities.

Many community banks and credit unions have stuck to the basics of their business.  They are sometimes willing to pay a little above the going local market rates.