Have you seen certificate of deposit (CD) rates lately? I will give you a hint, they are high and expected to get a bit higher in 2023 in view of predicted rate increases by the federal reserve. As of the start of the new year, you can get 12 month to 24 month CDs in the 4-5 percent range. If you look hard enough, I am confident that you can find rates in the 5-6 percent range as well. This is in stark contrast to only a year earlier, when rates hovered around 1 percent. On your financial journey, it is important to assess whether or not CDs should be apart of your holdings.
The Stock Market
In 2022, the stock market did not do so well. All the indexes were in the toilet. The Nasdaq was down 31.1 percent. S&P 500 was down 19.4 percent. The Dow Jones was down the least but was down 8.8 percent. The massacre is expected to continue into 2023. This will provide an epic buying opportunity in 2023-2024, but we will discuss this buying opportunity in another post. While the stock market was going down in 2022, do you know what was not down? Savings and CD rates. Both started 2022 ridiculously low. However, as the federal reserve began to fight inflation by increasing interest rates, both savings and CD rates became more favorable.
CDs
A CD is essentially a savings product that earns interest on a lump sum for a period of time. The time period ranges from three months to about five years. Unlike a savings account, with a CD, the money must remain untouched for the entirety of the term or risk penalty fees or lost interest. Because of this lost of liquidity, CDs usually have higher interest rates as compared to savings accounts. As compared to stocks and bonds, CDs are safer and more conservative and offers lower opportunity for growth. However, unlike stocks and bonds, CDs, if allowed to run the term, have a guaranteed rate of return.
CD Rates In 2023
At the start of 2023, CDs are paying 4-5 percent for eighteen month to twenty-four month term. For example, Marcus’ 12 month CD pays 4.3 percent and the 18 month CD pays 4.4 percent. Ally CD rates are 4.25 percent for 18 month, 3 years and the 5 year term. Synchrony on the other hand is offering a 4.6 percent rate for their 14 month term CDs.
Diversify
In life, it is usually best to diversify. By now, you are likely aware that it is likely best to diversify your income streams. You also may know that it is probably best to diversify your investment portfolio. While saving accounts are not necessarily the growth vehicle of the stock market, you should consider diversifying your money beyond investing in the stock market and having a savings account. In view of the current CD rates, investigate if CDs would be beneficial to your bottomline. If a CD is, open one. As the market tanks, instead of losing money, CDs may provide a reprieve. Instead of losing 20 percent in the stock market, gain 4-5 percent in a CD.
Conclusion
CD rates are high and expected to get a bit higher in 2023. These increases are in view of predicted rate increases by the federal reserve. As of the start of the new year, you can get 12 month to 24 month CDs in the 4-5 percent range. If you look hard enough, I am confident that you can find rates in the 5-6 percent range as well. This is in stark contrast to only a year earlier, when rates hovered around 1 percent. On your financial journey, it is important to assess whether or not CDs should be apart of your holdings.
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