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4 expert tips for choosing the right CD in today’s rate environment
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One positive coming from the Federal Reserve’s recent interest rate hikes is that most banks also raised the rates that they offer to savers. In particular, certificates of deposit (CDs) have been relatively attractive for many savers over the past couple of years, following a prolonged period of ultra-low interest rates. However, the CD interest rate yield curve has recently become inverted. Currently, short-term CDs typically pay more than long-term CDs.
Normally, the opposite is true, in part because banks want to entice consumers to lock up their deposits for longer. But because interest rates are projected to fall this year, short-term CDs — typically those with a duration of 12 months or less — often pay more than long-term CDs.
Still, it’s not always clear what the best move to make is. Should you go for the highest CD interest rate, regardless of the CD term? Or is it better to gain the certainty of long-term CD expiration dates, even if rates are lower? We asked some experts for their advice to help you decide what to do.
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4 expert tips for choosing the right CD in today’s rate environment
Here are four ways to pick the best CD for your needs now, according to the experts we spoke to.
Focus on when you need your money back
Because CDs typically have limited liquidity, in the sense that you usually have to pay a penalty for early withdrawals, you want to be sure you choose a CD duration that matches your liquidity needs, rather than solely getting enamored with CD interest rates.
“You need to align the maturity of the CD with your upcoming cash need. For example, if you’ll be funding a kitchen renovation in March of 2025, you would consider buying a one-year CD now,” says Chris Nemes, CPA, partner, Nemes Rush Family Wealth Management.
“If you buy a six-month CD today, it’ll mature in August of 2024. At that point, you’ll have to reinvest the proceeds into another six-month CD that matures before March of 2025. However, the interest rates in August might be lower than they are today. As a result, you could earn a reduced rate of interest from August on,” he explains.
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Consider inflation risk
Another factor in choosing the right CD for your needs could be your willingness to tolerate inflation risk.
“A disadvantage of a longer-term CD is the rate is locked in and the return could potentially be impacted by inflation,” says Courtney Mitchell, head of consumer deposit and payment products at TD Bank.
While you might want the certainty that comes with, say, a 5-year CD with a 4% annual percentage yield (APY), it’s possible that inflation will tick back up and eat away at those returns. Yet if you invest in, say, a 1-year CD and inflation falls, then your CD renewal rate might be lower than what you could have gotten with a longer-term CD. So, you have to weigh these tradeoffs.
Weigh withdrawal fees
If you underestimate your liquidity needs or get caught off-guard by inflation, you might decide to withdraw your funds before the CD maturity date.
Thus, you might consider CDs from banks that charge relatively early withdrawal fees, and that might also influence the CD duration you choose. In general, long-term CDs have higher penalties than short-term CDs.
Fees probably aren’t the only factor you’ll consider, but it’s important to weigh how everything fits together.
“The biggest points to consider are the term or how long your money will be tied up, the rate it pays, any fees that might be charged, and what happens if you want to get your money back sooner. Balancing these can help you find the best CD for you,” says Mike Hunsberger, CFP, owner of Next Mission Financial Planning.
With this in mind, it’s worth considering accounts with minimal or no fees, even if the interest rate isn’t as high as accounts that will charge you for withdrawing your money early.
Diversify your investments
If you’re having trouble choosing the right CD in today’s interest rate environment, one solution could be to build a CD ladder.
“A CD ladder entails buying multiple CDs of different terms — maybe 1, 3, 5 years,” says Hunsberger. “When the 1-year CD matures they can decide to reinvest the money in another longer-term CD if rates are attractive or keep it liquid in a high-yield savings account or money market” account.
And keep in mind that CDs aren’t your only option.
Whether you’re “considering CDs, municipal bonds, corporate bonds, or Treasuries, it’s prudent to space out the maturities of your investments to reduce reinvestment risk and introduce more predictable investment income,” says Nemes.
The bottom line
It’s hard to say exactly what the best CD moves to make are, considering everyone has different risk tolerance, investment goals, etc. Instead, focus on what matters to you, such as your liquidity needs and willingness to tolerate inflation risk, along with factors like CD fees and the interest rates of different CD terms. And remember, you don’t have to choose just one type of CD. You can spread your money across different CD terms, as well as other assets, based on your situation.
Learn more about your current CD options online today.
TRENTON, N.J. — Democratic Newark City Council President LaMonica McIver has defeated Republican small businessman Carmen Bucco in a contest in New Jersey’s 10th Congressional District that opened up because of the death of Rep. Donald Payne Jr. in April.
McIver will serve out the remainder of Payne’s term, which ends in January. She and Bucco will face a rematch on the November ballot for the full term.
McIver said in a statement Wednesday that she stands on the “shoulders of giants,” naming Payne as chief among them.
She cast ahead to the November election, saying the right to make reproductive health choices was on the ballot as well as whether the economy should benefit the wealthy or “hard working Americans.”
“I will fight because the purpose of politics and the purpose of our vote is to give the people of our communities and our nation a bold voice,” she said.
Bucco congratulated McIver on the victory in a statement but said he’s looking forward to the rematch in November.
“I am not going anywhere,” he said in an email. “We still have a second chance to make district 10 great again!”
Who are LaMonica McIver and Carmen Bucco?
McIver emerged as the Democratic candidate in a crowded field in the July special election. A member of the city council of New Jersey’s biggest city since 2018, she also worked for Montclair Public Schools as a personnel director and plans to focus on affordability, infrastructure, abortion rights and “protecting our democracy,” she told The Associated Press earlier this summer.
Bucco describes himself on his campaign website as a small-business owner influenced by his upbringing in the foster system. He lists support for law enforcement and ending corruption as top issues.
The 10th District lies in a heavily Democratic and majority-Black region of northern New Jersey. Republicans are outnumbered by more than 6 to 1.
It’s been a volatile year for Democrats in New Jersey, where the party dominates state government and the congressional delegation.
Among the developments were the conviction on federal bribery charges of U.S. Sen. Bob Menendez, who has denied the charges, and the demise of the so-called county party line — a system in which local political leaders give their preferred candidates favorable position on the primary ballot.
Democratic Rep. Andy Kim, who’s running for Menendez’s seat, and other Democrats brought a federal lawsuit challenging the practice as part of his campaign to oust Menendez, who has resigned since his conviction.
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Sean “Diddy” Combs at same Brooklyn detention center that held R. Kelly, Sam Bankman-Fried, other high-profile inmates
A second judge refused to grant bail to Sean “Diddy” Combs on Wednesday and he could remain in federal custody at a Brooklyn detention center until his trial for sex trafficking charges. Combs joins other high-profile inmates, such as singer R. Kelly, fallen cryptocurrency mogul Sam Bankman-Fried, rapper Ja Rule —even Al Sharpton served a brief stint— who were held at the same federal detention center.
Notorious for its horrible conditions —inmates won a $10 million class action settlement after enduring frigid conditions during an 8-day blackout in 2019— the waterfront industrial complex, MDC Brooklyn, houses 1,200 inmates.
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Violence and corruption have long plagued the facility; U.S. District Judge Gary R. Brown of the Eastern District of New York wrote the detention center had “dangerous, barbaric conditions” in a recent sentencing opinion. Two inmates were stabbed to death in recent months and several correction officers have been convicted for smuggling contraband and accepting bribes.
Combs joins a list of high-profile personalities that have landed at the MDC Brooklyn, partly because the city’s other federal detention center, MDC New York, closed in 2021, also due to horrible conditions. The disgraced financier Jeffrey Epstein died by suicide in his cell there in 2019. “Numerous and serious” instances of misconduct among corrections staff gave Epstein the opportunity to kill himself, a subsequent federal watchdog investigation found.
Kelly sued the federal detention center in 2022 for wrongly putting him on suicide watch after his sentencing. Kelly sought $100 million because he said the detention center knew he wasn’t suicidal after he was convicted in 2021 for racketeering and violating the Mann Act, which bars transporting people across state lines for prostitution.
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Former crypto billionaire Bankman-Fried survived on bread, water and sometimes peanut butter when he was in the MDC Brooklyn, his attorney said, because the detention center continued to serve him a “flesh diet” despite requests for vegan dishes.
Ja Rule stayed at the MDC Brooklyn for a brief time before being released after serving most of his two-year sentence for illegal gun possession. Most of his prison time was spent in a state prison in New York.
Sharpton served a 90-day sentence in 2001 and went on a hunger strike for protesting the U.S. Navy bombing of the island of Vieques, in Puerto Rico.
Combs was taken into custody on Monday and according to an indictment unsealed Tuesday he was charged with sex trafficking, racketeering conspiracy and transportation to engage in prostitution.
His attorney Marc Agnifilo told CBS News, “It’s impossible to prepare for a trial from where he is,” after a first federal judge denied Combs bail on Tuesday.
U.S. Magistrate Judge Robyn Tarnofsky agreed with prosecutors who argued the hip-hop mogul, who is accused of using his business empire as a criminal enterprise to conceal his alleged abuse of women, is a flight risk and poses an ongoing threat to the safety of the community.
Agnifilo said the part of the detention center where Combs is being held is “a very difficult place to be.”
contributed to this report.
