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  • CD rates are incredible right now, but you should think about your goals and how a CD fits into them.
  • Endlessly comparing all your options might just mean you end up wasting valuable time and energy.
  • Make a list of your goals and figure out which ones make sense for a CD, and which ones don’t.

As interest rates have risen, CD APYs have increased with them — in some cases, you might see an APY as high as 5.00% or more. With that in mind, it’s obviously easy to wonder if your strategy should change now that rates are higher. Where’s the best place to keep your money? It’s an important, complicated question.

See Insider’s list of the best CD rates »

Rates vary pretty significantly depending on where you look

For years, we experienced rock bottom interest rates. The Federal Reserve began hiking interest rates in March 2022 in an effort to calm inflation. Two necessary byproducts of that rate hike were a steep market downturn and recessionary fears.

You might assume that rate hikes would equate to higher interest rates on checking, savings, and money market accounts across the board, but that hasn’t really been the case.

Many online banks or credit unions are offering amazing rates — around 3.50% to 4.50% range for high-yield savings accounts and north of 5.00% for medium-term CDs. That level of interest is understandably appealing to investors looking to help their emergency funds, down payment funds, or general short-term liquidity needs keep up with inflation.

Those sitting on sizeable cash balances would be well served in shopping around for institutions and rates on high-yield savings accounts that make the most sense for their personal financial situation. There is no need to overthink which high-yield savings accounts to use, as there are few hurdles to pulling your funds out.

Insider’s Featured CDs

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Be intentional with your CD strategy

Your strategy with CDs should be a bit more intentional, however. They have a fixed term, and you incur penalties for breaking the CD before maturity. They can be a strategic tool when you have clarity on the timing of when you might need the funds.

For example, CDs can be a fantastic way to grow funds you have put aside to make a down payment on a new home in 18 months, a home improvement project you want to make in 12 months, a tuition payment you will make in six months, or a portion of your short-term liquidity bucket if you are retired.

They should not be used for emergency fund purposes, because you never truly have visibility or control over when you need to access the funds within your CD in the case of job loss, sickness, or other emergencies. Especially when considering the uncertain economic climate, it’s a dangerous game to tie money up in a CD that will carry financial penalties when tapping into the funds early.

Avoid the headache of ‘rate shopping’

While it makes sense for consumers to shop around for which institutions might offer higher interest rates, I always caution folks to not spend too much time “rate shopping.” There’s a temptation to “rate chase,” which I believe is not a productive use of time.

I’ve seen so many clients spend months or years pondering the simple shift from a savings account paying 0.10% to one paying 3.25% APR now. These are brilliant folks who are typically afraid of making mistakes. More often than not, they spend their precious brain space contemplating small decisions and not the big ones that might have more of an impact.

More importantly, rate shopping often isn’t a healthy process. How much precious time and energy are you wasting on constantly hunting for a better rate on your emergency fund? Will an extended search for a new option lead to you having more money, or will it lead to you staying indecisive? I’ve seen enough people engage in this behavior to know that it will likely take you longer than you expect to make a decision, you’ll risk losing money, and you’ll find yourself frustrated.

Some of the most successful investors take their time to set their saving, investing, and spending plans in advance. They run their numbers, set an asset allocation that matches up with their investment time horizon, set up their automatic contributions and go about living their lives. They do not spend a ton of time revisiting this, except for quarterly or semi-annual reviews. I truly believe this is the recipe for financial success long-term.

Insider’s Featured Savings Accounts

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Assess your goals before committing to a CD

While it’s tempting to look for safety for your money given current market conditions and put it all in CDs or high-yield savings accounts, it’s important to stick with your overall retirement (or other) investment plan. That often means continuing to put money in the stock market, even when it decreases in value or there is a looming recession. CDs or high-yield savings accounts won’t always be paying 4.00% plus.

Applying those lessons to CDs or high-yield savings accounts, I recommend folks follow these steps:

  1. Examine your financial goals and decide how much you want to go to an emergency fund, purchasing a home, funding your child’s education, planning for retirement, paying off debt, and other long-term costs.
  2. Figure out which of those goals have have predictable timing. Things like weddings or a tuition payment are predictable. Emergency medical bills are not.
  3. Identify which goals could be done sooner if the funds were working harder.

The goals that qualify for #2 and 3 are great candidates for utilizing CDs. If you are actively saving funds for those goals on a monthly basis, you may want to take the bulk and deposit it into a CD, while adding the remainder into a high-yield savings account.

 

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