Q: Do CDs earn monthly interest? I’m looking for monthly income and need some help. Thank you!
A: If your goal is to generate monthly income from CDs you have two options. Your first option is to buy a number of different CDs that mature one month apart. Each month when one of your CDs matures you’ll receive your principal plus an interest payment. This will effectively pay you monthly interest. If you’d rather not purchase multiple CDs, your second option is to buy one CD that pays monthly interest. But finding a CD with this feature may be difficult because CDs normally pay interest quarterly or all at once at the final maturity date. Fortunately, I’ve learned through experience that banks and brokerage houses are usually willing to accommodate your needs if you ask for monthly payments. However, if you expect to be paid monthly you may be required to buy a longer-term CD (1 year to 5 year maturity), so make sure you understand the risks involved of investing in CDs for the next few years.
You may also want to consider investing in money market funds as an alternative to CDs if you’re seeking monthly income. The interest rate offered by money market funds is about the same as short-term CDs, and both are quite low today. Money market funds may be more convenient than CDs, however, because they generally pay monthly distributions and can be bought or sold any time.
For a list of available CDs and money market funds in your area visit www.bankrate.com.