Five Must-Knows About CDs

As stocks continued to take a dive this week, many Americans looked for a different, safer spot to keep their money.

One option is a CD, or certificate of deposit. But before investing in a CD, there are a few questions that need to be answered to make sure your money is safe.

What Is a CD?

A certificate of deposit is a solid and safe investment for your short-term investments today. I put these in the category of investing so you can sleep at night.

As a refresher, a CD is basically a low-risk investment vehicle that you can purchase with a fixed sum of money.

Typically, your money is locked up for a period of time -- between three months and 15 years -- and either intermittently or at the CD's maturity, you receive interest payments.

The interest rate is usually more than what you would receive from a traditional savings account. You can purchase a CD from a bank or a brokerage firm.

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Are CDs the Best Place for My Money Right Now?

Since the president signed last week's $700 billion bailout bill, your CD is now insured up to $250,000 as long as it is held by a bank or thrift, which is part of the FDIC network, or a network of almost 8,500 institutions. Since the Federal Deposit Insurance Corp., was established 75 years ago, no consumer has ever lost a penny of their deposit at an FDIC-insured institution.

As to whether they are the best investment right now, they are a good choice for the short term, but in no way should be a substitute for the stock market.

Despite the market's recent volatility, the stock market remains the superior place to invest for the long term. Since the darkest days of the market on Black Monday, the market has averaged an annual return of about 8.8 percent -- far and away better than the average CD return.

So, my advice is to buy a CD for your short term or emergency savings money, and stick to the stock market for your retirement savings.