I am wondering exactly how CDs work. I am not looking fo investment advice just factual answers for how you can make money for them.
I know that they are low return but they are FDIC insured. I am going throw numbers around here and I know that things can change. From my understanding on how they work, if you put X amount of money in, at the maturity date you get X+Y (Y being the intrest rate).
For example, if I put $10,000 in a 1 yr CD, at 2% intrest, after the year, I would have $10,200. (I am not counting taxes on the money to make this easier).
What if I had $100,000 and put it in a 7-day CD. Would I have $102,000 after the 7 days or would it be less? Is the intrest that the posted at the bank a APR or is it for the length of the CD? Could I have the intrest sent to a checking account and have the money rolled over to another 7-day CD, thereby having a weekly income of $2,000? Is there something that prevents you from keep rolling over the money every week? Cost of living increases aside, could I have a stable income for the rest of my life if I did this?
I have a friend that stands to inherit $100,000 and I FEAR that he will sqaunder it. I recommened that he check into doing this. If so, he will be set for the rest of his life maybe working part time to cover cost of living increases.
If they work the way that I think they do, personally I would take 25% of the intrest and roll that back into the CD, then use the remaining 75% as a very large supplement of my income.
I know that he will have to pay taxes on it but I also know that he may not make the best investment decsions if he were to invest it in the stock market or such. I mean it is his money and he can do with it as he wishes but I am hoping he uses it wisely and CDs are a very low risk investment.
Thank you in advance!!!