Navigating Deposit Strategies
Take Easy Exits Only
Though the Federal Reserve has raised interest rates, the climb has been more gradual than the typical saver would like. While we expect further boosts, even a slow upward movement in rates over the next year or more means CD savers need to be savvier than ever in choosing their certificates and its timing. These best practices will help you maximize earnings in your certificate of deposit investments, no matter how quickly or slowly rates go up.
Learn To Ride With The Climb
When you choose a long-term CD such as four or five years you do so to earn a higher rate. But if we enter a period of increasing yields, that choice has a significant downside. Not only will you be locked in at today’s returns in the later years of your CD, after yields have been on the rise for the first few years, but the cash invested in your long-term CDs won’t be available to deposit at new, better rates when they start becoming available.
That’s why the smart move today is to focus largely on short and mid-term CDs, ideally up to three years in length. If you find yourself unable to resist an attractive long-term rate, use caution and research the institution’s early-withdrawal penalty to avoid strategy and investment pitfalls.
Master the Art of an Exit Strategy
At a typical six months’ interest, incurring a penalty can be a smart financial decision in exchange for making funds available for a new, higher rate CD. But if the penalty is more onerous some institutions charge 12 months’ interest or more, or even assess a penalty that can cut into your principal. Look either to a long-term CD with a milder penalty or to a shorter-term rate.
Smart choices on maturity length aren’t the only consideration. When looking at short-term CDs, never lock in your funds at a rate less than you can earn with a savings or money market account. Stay on top of maturity dates and rollovers. Don’t put your money on autopilot make a deposit relationship a priority. Communicate with your strategy, talk it out and know your options in earning more for the next term.
Building financial trust is not a one and done deal. It takes a kind of relationship that gives traction for life’s journey.