I the Demise of a Savings Account

QUESTION 1

How safe is each investment and is it insured against loss?

1st suggestion: Close savings account

If Mike close his savings account, he able to withdraw all the accumulated savings $100,000, it is safe and it is insured against loss since it is in the form of cash which is the most liquid asset and can spend at any time. However, if Mike continues held a savings account in bank it’s also rather safe and it could insure against loss too. This is because of savings account would not get investor in to loss of principal and still may earn a return of 3% annually and this savings account would guarantee Mike will not loss.

However, if Mike close his savings account and use his savings to invest in others portfolio, it may be higher risk and least safe. For different kind of investment, it has different risk and gain. It may be discuss further more in the following investment suggestion.

2nd suggestion: Purchase four $20,000 CDs, one of each of the following:

Maturity | Interest rate |

1 year | 4.00 % |

2 years | 4.25 % |

3 years | 4.50 % |

4 years | 5.00 % |

Referring to the first question that Mike asked, how safe is the investment and it is insured against loss, I would answer that CDs is one of the safest investment vehicles besides savings account and yes, it is insured against lost with a but. Although there is a possibility of loss of purchasing power through the inflation rate exceeding the rate earned on the account but there is no risk of loss from default because these accounts are usually insured by the federal government. However, the insurance is not automatic but must be purchased from the Federal Deposit Insurance Corporation (FDIC) by the bank but then a few banks have chosen not to purchase the insurance. Hence, if safety of principal of an investor is a major concern, it is better to be deposited only in an account insured by the federal government.

Lastly, we can see that the interest rate is higher than what Mike...