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We asked 10 financial advisers: What's the secret to investing in CDs now, with a handful still paying 5% APY and up?

The article titled "We Asked 10 Financial Advisers: What's the Secret to Investing in CDs Now, With a Handful Still Paying 5% APY and Up?" from MSN Money delves into the current landscape of Certificate of Deposit (CD) investments, particularly focusing on those offering high Annual Percentage Yields (APY) of 5% and above. The piece compiles insights from ten financial advisers, providing a comprehensive overview of strategies, considerations, and the current market environment for CDs.

Overview of CDs and Current Market Conditions

Certificates of Deposit are time-bound deposit accounts offered by banks and credit unions, which typically provide higher interest rates than regular savings accounts in exchange for the depositor agreeing to leave the money untouched for a fixed period. The article highlights that while the general interest rate environment has been rising, a select few CDs still offer APYs of 5% or higher, which is significantly attractive in the current financial climate.

Insights from Financial Advisers

Diversification and Laddering Strategy Several advisers emphasized the importance of diversification and the laddering strategy when investing in CDs. Laddering involves purchasing multiple CDs with different maturity dates. This approach allows investors to benefit from higher interest rates on longer-term CDs while maintaining liquidity through shorter-term CDs. Advisers noted that laddering can help mitigate the risk of interest rate fluctuations and provide a steady income stream.

Focus on Credit Unions and Smaller Banks Some advisers recommended looking beyond large national banks to find the best rates. Credit unions and smaller banks often offer more competitive rates on CDs, especially those with higher APYs. The article suggests that investors should research and compare rates from various institutions to maximize returns.

Understanding the Risks and Liquidity While CDs are generally considered low-risk investments, advisers pointed out that they come with their own set of risks, primarily related to liquidity. Early withdrawal penalties can be significant, and investors need to be aware of these before committing their funds. Advisers recommended that investors should only invest money in CDs that they can afford to leave untouched for the entire term.

Monitoring Interest Rates Given the dynamic nature of interest rates, advisers stressed the importance of staying informed about the current rate environment. They suggested that investors should be ready to act quickly when they find CDs offering high APYs, as these rates can change rapidly.

Balancing CDs with Other Investments Several advisers cautioned against putting all one's money into CDs, even those with high APYs. They recommended balancing CD investments with other types of investments, such as stocks, bonds, and real estate, to achieve a well-rounded portfolio. This diversification can help manage risk and potentially increase overall returns.

Long-Term vs. Short-Term CDs The article discusses the trade-offs between long-term and short-term CDs. Long-term CDs typically offer higher interest rates but require a longer commitment, while short-term CDs provide more flexibility but often come with lower rates. Advisers suggested that investors should consider their financial goals and liquidity needs when choosing between these options.

Tax Considerations Some advisers highlighted the importance of considering the tax implications of CD earnings. Interest earned on CDs is taxable, and investors should factor this into their overall investment strategy. They recommended consulting with a tax professional to understand how CD earnings might affect their tax situation.

Inflation and Real Returns With inflation rates being a significant concern, advisers pointed out that the real return on CDs (after accounting for inflation) is a critical factor to consider. Even with high APYs, if inflation rates are high, the purchasing power of the interest earned could be diminished. Investors should weigh the nominal interest rate against the current inflation rate to assess the true value of their investment.

Special Offers and Promotions The article mentions that some financial institutions offer special promotions or bonuses for opening new CD accounts. Advisers suggested that investors should keep an eye out for these opportunities, as they can sometimes provide additional value or higher effective yields.

Personal Financial Goals Finally, advisers emphasized that the decision to invest in CDs should align with an individual's personal financial goals and circumstances. Whether saving for a short-term goal, such as a down payment on a house, or planning for long-term retirement, the choice of CDs should fit into a broader financial plan.

Conclusion

The article concludes by summarizing the key takeaways from the advisers' insights. It reiterates the importance of a strategic approach to investing in CDs, considering factors such as diversification, liquidity, interest rates, and personal financial goals. While CDs offering 5% APY and above are attractive, investors should carefully evaluate their options and ensure that their investment decisions align with their overall financial strategy.

In summary, the article provides a detailed and nuanced exploration of the current state of CD investments, offering practical advice and considerations for investors looking to capitalize on high-yield opportunities in the market.

Read the Full MarketWatch Article at:
[ https://www.msn.com/en-us/money/savingandinvesting/we-asked-10-financial-advisers-what-s-the-secret-to-investing-in-cds-now-with-a-handful-still-paying-5-apy-and-up/ar-AA1Ho0FT ]