Inflation Linked CDs

Most investors worry about inflation because the cost of living rises as inflation rises. Furthermore, the cash you lend to someone is worth less when paid back if inflation goes up dramatically. It basically erodes the purchasing power of your dollar.

What can CD investors do? Well there is an investment vehicle called an “inflation linked CD.” This is a FDIC insured CD that provides investors with a form of inflation protection because it offers variable interest rates.

The interest rates paid on these inflation linked CDs (certificates of deposit) will vary based upon the national Consumer Price Index (CPI). That’s a boon to savers.

Naturally these inflation linked CDs come at a cost. They offer CD rates below traditional CD interest rates because they pose significantly less risk to the investor that they will miss out as interest rates rise. So additional protection against inflation is available in CDs, but it will cost you a drop in yield.