High interest rates are the last thing you want.
And if you're paying back a loan, but if
you're looking to grow your savings, they can work
to your advantage. One way to benefit from high
rates is by investing in high yield certificates of deposits
or what's commonly known as C DS. For more
on how to make C DS work for you.
I'm joined by Market Watch Consumer Reporter, Andrew Kushner
. Andrew. Welcome to the show. Hey,
thanks for having me. Let's start with the basics
. How is a CD different from a traditional savings
account? Yeah. Well, so it, it
, it actually is a savings account like your other
savings accounts out there. The, the, the
twist is there's a time element to it. Uh
, you know, with your standard savings account,
you could take your money out when you need it
. Um, with the CD, um, the
money your principal gets unlocked um after a certain time
, three months, six months, 12 month,
uh you know, and so on. Um,
and if you pull it out early, there's gonna
be a penalty, but it, it's really that
time twist when you're locking up your money and does
that penalty, eat up all the interest you would
have gained during that time period. So, it
, it really depends what, um, you know
, how long you're the CD that you put the
money in. Uh, but it, it's common
to have a six month interest penalty. Um,
and so that's, you know, that, that
can vary, you know, a, a different
lengths of C DS and it still could be something
like a six month. So one danger is,
is if you have maybe a shorter than a six
month CD, um you could still get knocked for
a six month interest penalty, which could gnaw away
at your principal. Uh As experts tell me good
, good advice. Now what makes a CD a
safe investment then? So it, it really,
it, it, it's all about that FDIC insurance
uh because a, a CD uh like a savings
account like a checking account. Um It's a bank
deposit. Uh So it has that FDIC protection up
to$250,000. I mean, so that is,
that, is it, that is yy again,
with that little twist of if you're pulling your money
out and depending on the type of CD, um
your principal is protected, you can't touch your funds
until the city matures or you face a penalty,
right? So how should people determine what length of
term is right? For them? Given the fact
that you really only have a small window to use
this money if you need. Yeah, I,
you know that, that's there, it really comes
down to thinking about when you need that money.
I'll give you the, the best example I can
give you is something I'm thinking about in my mind
right now. So I'm gonna be sending my kids
to camp in the summer and that is money.
Um, and, and I know that I need
this certain amount of money at a certain time and
I, um and I figure I might as well
get a little bit extra interest while it's just sitting
there. Um So I, I need to plan
out when I need that money um to, to
have it unlocked, you know, have that be
able to access that principle. Um And, you
know, so that come March, I'm able to
get it in and, and pay it. Um
So it's kind of an, an individual thing,
but it's about when you need the money in,
in a conservative low risk environment. I've heard other
people say, hey, maybe you're planning for a
down payment on a house um in a couple of
months or even longer. And that is money that
you have now and you don't want it subject to
the, the ups and downs of the market,
just put it in a CD and just like,
let it, let it sit there, get a
little bit extra interest and um so it comes back
to your individual goals and when you need that money
, I just gotta say school just started and you're
thinking about camp. Wow, things have gotten so
expensive already. Uh Different story already. So what
are your options? Once the CD comes to the
end of its term, what should you do?
Should you roll it over again or should you take
it out? Uh again, it, you know
, it depends when you need that money. But
yeah, that is definitely an option to maximize that
interest. Um That's called this uh one of the
ways this is described is called the CD ladder where
, where the money, uh you know, the
, the principle uh unlocks and then you roll it
into the next one and the next one and the
next one, I've heard one strategy is you get
a three month CD, a six month CD,
a nine and a 12 and then the three month
matures, you put that in the 12, the
nine, the six month matures, you put that
in the 12, the nine month matures, put
that in the 12 and then boom, when the
12 month matures, you have all of this um
money that has been accruing principle. I'm sorry,
accruing interest um uh in the 12 month and hopefully
at the highest rate. So, are there any
limits on how much you can invest in a CD
? Actually? To my understanding? No, uh
I, I mean, I'll, I'll, I'll
make this, I'll make this condition, uh,
you, if you have a CD, maybe in
your, like a retirement account, you, you
know, there's only so much that you can put
in a retirement account at one time. Um,
but if you just kind of have it out there
or you have it in a, like a regular
brokerage account, um, I, as I understand
it, there's, there's no limits, uh,
to it. II, I think one thing when
, whenever I talk about C DS and just cash
as an investment, uh right now it's, it's
so I totally get it. And I'm, and
I'm part of it too. This temptation, not
temptation, this understanding and willingness to put your money
in cash. But you got to remember that in
the long run cash, the returns on cash may
still not be inflation. Um You know, uh
it's, it's a like some averages right now on
a one year CD is just over 5% which is
great. Um But just think about the inflation information
that we've had. Uh so, you know,
just kind of keeping in contact on it all.
So how can folks find the best rates? You
know, this is, this is where you just
shop around on um on online. I mean,
there are all you have to do is put type
in Google CD rates for uh September 2023 or best
CD rates. Um And you know, it's funny
, I just, I, I joke because I
have a stack of compact discs, um, up
in my attic and they're just gathering dust and,
you know, no one cares about those C DS
. Um, but, um, uh, but
these C DS, it's, it's, it's,
it's a really hot thing right now. Um,
as, as we're going through this moment of rising
interest rates. So, really just the internet is
your friend. But, but I will say read
that fine print because sometimes they come in with these
fantastic a pys uh 456, you know, these
great great returns and then you say, oh,
minimum deposit of$10,000 or something like that. So
you just be, be sure to read all,
all that fine print. Thank you so much Market
Watch reporter Andrew Kashner. Thanks for joining us.