With CDs, you can bank on bank interest rates — for now

By Steve Dinnen

In April, I bought a certificate of deposit at my bank, and when it matured last month, I collected 4.25% interest. Just this week, I “laddered” six CDs, with maturities of three, six, and 12 months, with interest rates of 4.5%, 4.85% and 5%. I may buy more.

These days, for the first time in many years, bank interest rates are benefiting savers. Thank the Federal Reserve, which raised its federal funds target rate 11 times in the past 18 months in its bid to cool inflation. That dragged along interest rates paid by borrowers (bad for them) as well as rates paid to savers (good for us).

The current rate of inflation is slightly above 3%. So if you can get a CD for 5%, you’re ahead of the game a bit.

Over the long haul, cash will lag behind stocks or bonds. But for now, at least, you can get an honest return — and one that doesn’t gyrate, like the market. As Kent Kramer at the West Des Moines financial planning firm Foster Group said when discussing CDs, cash doesn’t have bad days.

The Fed could start to lower interest rates in 2024. CD rates likely will fall, so that might be a good time to lock in some longer duration CDs, to milk that positive return just a little longer.

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