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Rates on C.D.s Are Soaring, but the High Rates May Not Last

If it’s a stash for emergencies like car repairs or medical bills, don’t restrict access for too long. We want to be able to withdraw cash immediately if needed without worrying about penalties. You might be better off getting a slightly lower rate on a savings account with fewer withdrawal limits and higher yields.

However, longer term CDs make sense when the cost is significant at a known future date, such as college tuition payments.

People who have retired or are about to retire often want to keep two years of living expenses in safe cash, so they may benefit from long-term CDs with higher interest rates, according to customer-to-customer matching services. A Wealthramp founder, Pam Krueger, said: Fee-only financial advisor. A 3-5% increase in CD rates for her would provide welcome relief, she said, as paltry interest rates in recent years have been hurting retirees.

But given concerns about the economy and uncertainty over whether the Federal Reserve will continue to raise rates, it’s unclear how long banks will continue to pay high interest rates. According to Krueger, one of his ways of dealing with an uncertain outlook is by creating a so-called “CD ladder.” This involves splitting your savings into multiple CDs with different maturities. This approach aims to maximize interest earned while keeping funds available on a regular basis. For example, for $20,000, he can open 4 CD accounts with $5,000 deposits in each and durations of 3, 6, 9 and 12 months. When the 3-month account matures, you can reinvest the money in another 12-month CD (or use the cash if you need it). You can set up the ladder yourself or hire a broker.

Below are some questions and answers.

Given the recent turmoil in banking, depositors are particularly concerned with making sure their funds are protected.of Federal Deposit Insurance Corporation We typically protect up to $250,000 per depositor per guarantor bank. If you share your account with another person, each will receive her $250,000 compensation, and in total he will have $500,000. (The federal government chose to insure all deposits (including those that exceed insurance limits) at two banks that failed in March. But there is no guarantee that the government will do so in the future. .)

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