I feel like I'm missing a crucial bit of information regarding CD's and whether they are truly worth the time in comparison to stocks/etfs.
There are currently a bunch of 3 month CD's available via TDA with an average APY of 5%. I know this fluctuates, but say it remains around the same mark throughout a year and I were to start in Jan with 10K at a 5% APY. I then use the resulting funds to buy another 3 month CD for 5% APY and again and again before the year is out.
We'd be at 10K starting –
10500 – after first CD
11025 – after second CD
11576.25 – after third CD
12155.06 – after last CD
total return is 2155.06
Would this not be ~20% total return for the year on that initial 10K?
If so, and if the rates remain at this level (big if), why not take this approach, at least with funds that are just sitting around in a savings account?
I’ve only ever dealt with CD’s as a “gift” from my grandmother many years ago and I feel i’m missing something crucial, or my math related to the overall return is wrong.
Thank you!
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