Yes, that is the question, to paraphrase William Shakespeare. Although the CD dilemma is not the soul-searching question Hamlet faced in his soliloquy. Nonetheless, it is still an important question for many pre-retirees and retirees looking for a safe place to park their money, especially in times of market fluctuation. Before we can answer that key question there is are two fundamental questions that must be addressed. The first is, what is the purpose of the money you are looking to invest in a CD? The second important question is, what is your experience investing money?

A CD (certificate of deposit) is a fixed-rate instrument. As we know, they can be purchased at banks and credit unions, even through brokerage firms. Like other fixed-rate instruments a CD can provide income and growth of principal. It brings with it the federal insurance that other bank deposits carry. As a result, many people who trust CDs to supplement their income are typically low risk investors.

From my experience of working in banks and credit unions, many CD investors want nothing to do with the stock market. They are more than willing to sacrifice the potential upside that even municipal bonds or other so-called lower risk securities can offer.

I have also found that many savers and investors who look to CDs to provide income and security often fail to ask that all important question, what is the purpose of the money? You see in many cases income is not the goal. Many CD holders don’t need the income and want to leave the money to their heirs. So, they don’t want to risk the principal during their lifetime. We will tackle risk next. First, you need to know that a CD may not be the best wealth transfer option that you have.

There are several wealth transfer products that afford you the ability to leverage your CD into a much greater legacy. For example, a fixed annuity with a death benefit can be a way to transfer wealth in a tax efficient manner.

Now, there are complexities, too many to address here, however, as a strategy it is worth considering if wealth transfer is your goal. You essentially partner with an insurance company to give them your funds and in turn, through the beauty of insurance, they provide you with a death benefit that can be much greater than your original CD investment. You name the beneficiary upon your death as you would with any life insurance policy. A more thorough explanation can be found here.

The second question, what is your tolerance of risk? That is a more complex discussion and should include a financial advisor that you trust. Beware the “one-size-fits-all” approach with a number scoring. While questionnaires are useful, a good financial advisor will have a thorough discussion with you to arrive at an appropriate risk assessment.

If you truly are risk averse, then a CD may be the best vehicle for you. If you can tolerate some risk, then it opens a world of other so-called conservative investments that can move you ahead much faster in the retirement and pre-retirement game. Risk tolerance is unique to you just as your fingerprints are, so I caution you not to follow your neighbor or cousin Harry’s advice as it is based on their risk tolerance not yours.

To CD or not to CD? Perhaps. Perchance to dream of possibilities of a retirement on your own terms. One that is unique to you. Work with a financial advisor that you can develop a trusting relationship with. Retirement is an arduous journey. One that requires help along the way.