Q: Paula asks: “Are certificates of deposit (CDs) a good option today, or should I maintain liquidity with my cash?”
A: It really comes down to your situation. If you’re certain you won’t need the funds for the duration of the term, the interest from CDs can be beneficial.
First, assess your cash needs. Jamie Bosse, a CFP with CGN Advisors, advises her clients to categorize their finances into different “buckets,” one of which should be cash.
Your cash bucket needs to cover your emergency fund and any cash you’ll require in the near future for trips, home improvements, or similar expenses. Ideally, this portion of your finances should also earn some interest, whether through a high-yield savings account, a money market account, or a CD.
If you might need cash quickly, a high-yield savings account is your best option. Conversely, if you have funds that you can set aside for a specific duration, a CD may be appropriate. Bosse points out, “If you have savings for a purchase planned in 12 months, then a 12-month CD makes sense since you won’t need to access it until then.”
At present, top CD rates exceed 4% – but keep an eye on the market. With the Fed likely to announce another rate cut soon, these rates may decline. If you decide a CD is the right fit, it’s wise to act promptly.
