They’re everywhere right now, billboards hawking seemingly great interest rates. Online, banks push ads promising even better rates.
In light of recent history, 4 to 5 percent guaranteed sounds great!
It’s all in context, though.
CDs typically track inflation or offer rates slightly below it.
Last year, inflation peaked around 8 percent. In previous years it was extremely low from a historical perspective, bottoming out in 2013.
Today’s CD rates may make them a good choice to lock in a small return on funds you will need in 3 to 5 years—without any market volatility. Potential uses for CDs include college tuition, pending tax bills, or down payments—expenses you know are coming.
For longer-term uses, especially goals that are more than 10 years off, CDs are likely to cost you some purchasing power.
Because they typically don’t keep up with the rising cost of goods and services, there’s a joke that CDs are a super-safe way to lose money.
We all understand that $100 doesn’t buy what it did 20 years ago. That’s the silent wealth destroyer of inflation.
So, should you buy a CD? Well, it depends. For short-term needs, they can be effective tools, but for longer time horizons, we’d probably advise that you look to other strategies.
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Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All investing involves risk including loss of principal. No strategy assures success or protects against loss.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through ICA Group Wealth Management LLC, a registered investment advisor. Corner Post Financial Planning and ICA Group Wealth Management LLC are separate entities from LPL Financial. LPL Financial does not provide tax or legal advice.