Amid market volatility, certificates of deposit are having their moment — for now
In the midst of all the market volatility, many investors are seeking safe havens for their money. And for some savings instruments, time is of the essence.
Take, for example, the classic bank certificate of deposit, or CD. Certificates of deposit give guaranteed returns, if you promise to leave your money in the bank or credit union for a set period of time — usually three, six, nine months, though maybe one to three years.
“CDs have been a more attractive option recently, and we have seen a big shift among credit union members moving their savings into CDs,” said Curt Long, deputy chief economist for America’s Credit Unions.
That’s because CDs rates tend to track the rise and fall of the Fed’s interest rate. So lately, there have been CDs that will let you lock in rates of 4% or 5%.
But not for long, according to Todd Alessandri, dean of the college of business at Bryant University.
“With a rate cut coming, now is probably a decent time to actually lock in a CD rate, because with a rate cut coming in September, we’re likely to see CD rates fall,” he said.
Customers who happen to have some savings sitting around or who have maybe recently pulled some money out of the market may have extra incentive to put money in a higher yielding CD that will keep paying at a higher rate — even when returns elsewhere are going down.
“Now they may be interested in maybe some longer dated CDs,” said America’s Credit Unions’ Curt Long. “We may see some shift in terms of the terms of CDs that people are looking at right now.”
That’s a strategy Justin Staub and his wife are considering. Staub teaches business and economics to high schoolers in a suburb outside Philadelphia and said his family keeps about 60% of their emergency fund in CDs.
“My wife found something called a CD ladder, where she puts a third of our remaining money in a nine-month CD, a 12-month CD and an 18-month CD,” he said.
One of those rungs on the ladder is expiring this summer, and Staub said that money will likely be reinvested right back into another CD.
“Looking at how the markets are going, and the Fed’s going to cut rates, ‘OK, we want something that’s going to be locked in for a medium-term period of time that we know is going to continue to grow even though the markets might slow down,” he said — just a bit of a safety cushion in volatile times.