Updated on 03.01.12

If You Have an Unexpected Windfall, Put It in a CD (61/365)

Trent Hamm

When I wrote 365 Ways to Live Cheap in 2007, a person could easily find a bank CD that offered a 6% return. All you had to do was lock up your money at the bank for a year or so and they’d give you back six cents on every dollar.

That’s a pretty good deal. In fact, if it were available today, I would have a lot of my money in such CDs.

Unfortunately, since 2007, rates on CDs and savings accounts have dropped through the floor. Today, you’re hard-pressed to find a CD that will return 2%, let alone 6%.

Still, the value of a CD isn’t why I put this advice in the book to begin with. The point of this entry is something else entirely.

If You Have an Unexpected Windfall, Put It in a CD (61/365)

We all have windfalls. A relative suddenly dies and leaves us some money. We win a big drawing or contest. We have an opportunity for some side work that puts some one-time cash in our pocket.

When we have a windfall, there’s a temptation to splurge. A big temptation.

The last time I had a nice unexpected windfall, I was really tempted to go buy several smaller items that I had wanted for a while but hadn’t bought because, honestly, I didn’t really need them. I had my eye on a new board game, a pair of shoes, and a couple items for our kitchen.

Willpower kept me from doing it. I put the money in our checking account quietly and went on with life.

However, I know that I wouldn’t have had that kind of willpower a few years ago. I I would have had have those new items in our house faster than you can blink.

That’s the reason I suggested putting the money in a CD. If you put money in a CD, it’s essentially locked away for a while. You can’t withdraw it without losing some of that money. This provides you a period of “cooldown” where you can think rationally about what to do with the money instead of making a spur-of-the-moment (and likely poor) decision about how to use the money.

A CD, in other words, is something of a lockbox that, at the time of the writing of the book, paid a pretty good interest rate.

Now that CDs aren’t paying as good of an interest rate, is the advice still valid? I think it is, but it’s not as strong as it once was. A CD will still pay you a better return than a savings account. It will still keep your money locked away until you’re ready to make the right decision with it. It’s also convenient, because you can handle all of this at the bank you already do business with.

If you’re really worried about return on the money, there are other investment options, of course. You could open a brokerage account and put it into stocks, for example. However, stocks have risk (meaning you might lose money), you have another entity to do business with, and they’re still liquid (meaning you can essentially pull out the money without penalty whenever you want).

If you’re still struggling with willpower when you find yourself with a windfall, a CD is still a pretty good place to put it.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere. Images courtesy of Brittany Lynne Photography, the proprietor of which is my “photography intern” for this project.

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  1. Baley says:

    Nice picture of CD’s! Too bad they’re the wrong kind of CD…

  2. mary w says:

    So do you think the picture is an intentional joke or just an unintentional one?

  3. Johanna says:

    If it was intentional, she could have made a similar joke with the “balance the checkbook” one. Or maybe she just couldn’t get that one to turn out.

  4. kc says:

    I think it’s intentional and not particularly funny.

  5. josh says:

    It’s like christmas morning….I have waited weeks for this picture to get here and now it is here. I almost don’t know what to say.

  6. Vanessa says:

    There’s a hair on it. Gross.

    This is where having goals comes in handy. If you know what you’re saving for, you’re less likely to be tempted to spend money just because it’s there, and you won’t need to hide money from yourself.

  7. Mister E says:

    Judging by some of the questions that Trent gets I would imagine that there are going to be at least a few people reading this article that receive a windfall and immediately drop it all on compact discs.

  8. Angie says:

    And all this time I’ve been using the wrong CD’s.

  9. Julie says:

    Can we use CD-RWs or DVDs instead of CD-Rs?

  10. David says:

    No, no. DVDs are where you put dividends.

  11. rebecca says:

    Actually, Trent the last time you had a big windfall you did run right out and spend it, you paid off your house.

  12. Gretchen says:

    Not even a CD player in a Neon.

    I’d also pay down my mortgage (depending on how big said windfall was).

  13. Liz says:

    This blog is sort of like getting advice from your well-intentioned, but slightly dotty grand-uncle.

  14. Amanda says:

    I feel like your intern ran out and took all of these photos in a weekend.

    Is this supposed to raise her boat?

  15. Alice says:

    I have to give the intern credit for a truly thought-provoking photo. But the types of thoughts it’s provoking are not very positive.

    I feel like this blog has become a joke and that Trent is laughing at his followers with his crappy posts and bizarre photos. I’m wondering how much damage Trent and the intern are doing to their future selves with this poor quality work.

  16. Emma says:

    “We all have windfalls” I am still waiting for mine.

  17. BD says:

    @David: I admit it, you made me laugh with your DVD comment. Great one-liner! :D

  18. Teresa says:

    wow, I haven’t read this blog in awhile but the commenters are really negative. Find something positive to use from it or why do you keep reading?

  19. Mister E says:

    Well I USED to come here for reasonably intelligent discussion about daily money issues that we all face.

    But since that no longer exists here (excepting the comments), I now come for the yellow Neon, but stay for the stone faced bearded men who look like they aren’t ENTIRELY sure that the picture box isn’t going to steal their souls.

  20. deRuiter says:

    Liz #13, More comments from you in the future please, you’ve described the situation so neatly. And who would hire a photographer not even capable of ascertaining what kind of CD to picture? The author aparently isn’t even interested enough to look at the photo before it’s inserted in the article. Good luck with that fantasy novel which is absorbing all your “passion” for writing!
    #19 Mister E is also on point, “Well I USED to come here for reasonably intelligent discussion about daily money issues that we all face.

    But since that no longer exists here (excepting the comments)…” The new owners of this blog ought to be paying some of those who comment as they put more thought into their work than the author who allowed a photo of audio CDs to accompany an article about certificates of deposit. Evidently the new owners don’t bother to read the blog either.
    The poor quality of this blog is becoming boring. It’s only an easy cash cow for the author (so called author, is it plagerizing if you rehash your own old work over and over ad nauseum?) and the buyers who stuff it with ads no one reads anyway.

  21. deRuiter says:

    I’m reading this blog (Now) for the same reason people slow down on the highway when there’s a dreadful accident on the other side, you don’t want to look, you tell yourself not to look because it’s depressing, but you sneak a look to find out how bad the carnage is. Eventually you’ve seen enough destruction and you can pass future accidents without looking. The often informative and amusing comment section sometimes makes this worth a read, the bumbling, dottering rehashed articles, the ten things taken from the work of others, awkward / incorrect grammar, and the odd ball photos, “simply put”, don’t carry the column.

  22. Janis says:

    Although I haven’t bothered to unsubscribe from the emails, I’m no longer a regular visitor to this site. The only reason I clicked through to this article was to check out the comments in response to that misfired joke of a photo. You folks did not disappoint!

    If I could “+1” deRuiter’s comments (#s 20 and 21), I would.

  23. Michael says:

    I keep reading because Trent makes me sad and I see my own flaws in his mistakes, especially his preference for mediocrity. I keep hoping he’ll become less fragile but it hasn’t happened after a few years of running the site. Hopefully his next project matures him a little more.

  24. valleycat1 says:

    To add to #s 19, 20, 21 – I first got hooked into regular reading/commenting because Trent was making actual errors in his advice & I hoped to steer readers toward reality. Now, it’s more rubbernecking & I keep vowing to just stop reading, particularly since there are so many others here more than happy to point out all of Trent’s errors. And, I, too, suspect sometimes that Trent is just laughing his way to the bank.

  25. A Sumner says:

    I thought the stack of CD-Rs was funny.

  26. Gretchen says:

    The CD thing would have been clever if the other photos weren’t so boring/bad.
    I agree they’ve already all been taken.

  27. Evita says:

    What, no suggestion about using a windfall to clear out credit car/loan debt or making a dent in the mortgage, but instead to put it in a 2% CD !
    Great advice as usual, Trent!

  28. Kai says:

    At first there were piles of commentary about how the photos were too obvious. Here she tries a bit of wordplay, and she gets commentary on being too out of it. It might not be the same commenters, but it’s a bit of a no-win situation.

    I have little use for the poor photography, but I’ll give her the point for trying something different.
    It’s definitely better than yet another photo of some bills, or another photo of a brochure from her bank.

  29. Kai says:

    Highway accidents are not typically anywhere near as hilarious though. It’s rubbernecking to be sure, but it’s just so *funny* in addition to crashtastic. And the photos have just added to it for this set.

  30. Tom says:

    It is rather ironic (I think; David, help me out here!) that this article followed the “Rules vs. Facts” article, because there are a lot of cases where a one-time windfall would be much better spent on debt elimination or diversifying investments with a higher potential for ROI. CDs really aren’t earning much more than online savings accounts, and you can still get your “cooldown” period with the online savings, since it usually takes 72 hours to transfer money between banks.
    Put money in a non-descript CD is bad advice for a lot of people, and poor advice in general, unless you fall into the category of no financial willpower.

  31. Laundry Lady says:

    @ #30 I’ve got to agree with you about using windfalls for debt elimination. You “earn” better interest paying off a chunk of 6.8% student loan or high interest credit card debt than putting it in a CD earning 2%. If you are disciplined to hold onto it to save for something else, such as a replacement car or major home renovation then fine. While it can be hard to part with a windfall that makes you feel more emotionally flush with cash for a while, I personally want it out the door to pay off debt as soon as possible before I can justify spending it on something else. Or decide in advance to spend a small amount on something you’ve really been wanting and put the rest toward something useful. (Now obviously, if you are debt free, then you have more potential leeway in spending your money)

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