I have a few comments about your proposition:
1.) Interest rates most likely will rise as the credit crunch tightens. Money locked in long-term CDs will have a poor rate when compared to these high future rates. If your CD were treated as a bond, it would be losing principle in this situation.
2.) Some banks may fail - if you invest through a bank make sure the account is FDIC insured. Avoid banks offering consumer credit cards. Distribute your money across several banks.
3.) Consider short-term Federal bonds. Roll mature bonds into new issues. Almost zero risk of capital loss. Since the bonds are short-term, you will have new issues with competitive interest rates every new purchase, so you won’t be exposed to currency inflation losses as you would with a longer term fixed interest instrument.
You won't get rich investing in either CDs or Fed short term bonds, but the idea is to retain your principle during the next couple of rough years ahead.
I’m tired of seeing the Wall Street money machine steal retirement money from trusting fellow Americans. I believe in free markets and buyer beware, but when you have an ongoing conflict of interest between brokers, analysts, and the media misrepresenting the facts the average investor doesn’t have a chance.
The trick is to have enough principal in CDs by the time of retirement so that the interest can balance one's budget. In the meantime, try to not use that interest (especially if it is earning one of those high interest rates from a few years ago)
Meanwhile, do something to earn some income. If a person over 50 earns $3500 a year, they can transfer that much of savings into a Roth IRA...one might as well pay the taxes, which are pretty close to nothing on a small salary. Once that money is in an IRA, it is tax free interest, forever.
I agree with you that it's important to look for FDIC protection...those money market funds and some of those CDs sold through brokerages aren't directly from the bank, so their is no insurance protection.
And then, for heaven's sake, people have to take charge. Granted, some of this sale stuff and the attitude conveyed that you can trust the mutual fund is pretty sleazy and convincing. But, people who are just going to trust others with their money really don't do themselves any favors by accepting any risk at all.