The interest rates on certificate of deposit (CD) accounts have declined since their peak in October 2023, but they haven’t bottomed out yet. Experts say savers can still earn a healthy amount of interest if they’re smart about it.
To determine how much to invest, consider your needs and timeline. “Know the purpose of the money,” advises Patti Brennan, president and CEO of Key Financial. Ask yourself: Do you need the money for a specific goal in five years? Will you need cash in three years?
Also, know how much money you can leave untouched for a lengthy period. CDs are considered inaccessible, so early withdrawals come with penalties. The longer the term, usually the bigger the penalty.
Experts recommend not investing too much into a CD account. Going over the FDIC coverage of $250,000 could put your deposits at risk. You may also deplete your emergency fund by tying up too much money in a long-term CD.
A good strategy is to use a CD ladder, which involves spreading your deposit across several CDs with different term lengths. This allows you to take advantage of high interest rates while maintaining liquidity and flexibility.
Ultimately, determining how much to invest in a long-term CD requires weighing factors like goals and timeline for access to funds. Consider consulting a financial advisor to determine the right moves for your goals and budget.
Source: https://www.cbsnews.com/news/how-much-should-you-invest-in-a-long-term-cd-this-january-experts-weigh-in