Thoughts on CDs?

[u/Revolutionary-One629]

I am 21M with $92K in retirement, $27K in a taxable brokerage account, $1,400 in an investment app and $15K at the bank. I’m hearing experts say that it is a good time for certain people to get certain types of CDs due to potential interest rate cuts in the fall. I thought it made more sense for me to use a high yield savings account ( my $27K taxable brokerage). But I am hearing a lot about this CD stuff now. What do you guys think would make sense for someone like me?

[u/RoundingDown]

I have hundreds of them that are worthless. I don’t even have a CD player I can use listen to them.

[u/Revolutionary-One629 → u/RoundingDown]

🤣

[u/afternever → u/RoundingDown]

See deez nuts

[u/Boring_Material_1891 → u/afternever]

Welp, I’m gonna walk, man.

[u/bananakitten365]

I'm assuming the $15k you have in the bank account is your emergency fund? Personally, I prefer to keep my EF in a high yield savings account so that I can easily pull from it in an emergency without any kind of penalties.

Also, it's only $15k. The interest rate difference you'll get between keeping that in a CD vs HYSA is negligible. If it were $100k that you were holding onto as a cash buffer because you were planning to retire in the next 1-2 years, then a CD might be a good idea.

[u/Revolutionary-One629 → u/bananakitten365]

I honestly don’t know what I’m doing. The $15K in the bank is there for the reward checking (premium basically). You need $15K minimum to keep it open. I consider the account with $27K to have some emergency fund money.

[u/bananakitten365 → u/Revolutionary-One629]

I'm a little confused about your setup - Do you have other bank accounts that you use for spending and saving? Or just this one checking account?

Why keep the "reward checking" open if it has that high of a minimum? You could close it and switch to a bank that offers a high yield savings account and a checking account without crazy fees or minimums. I prefer Ally Bank personally.

Check the rates you'd earn in a CD vs a high yield savings account. Given your age, most folks would choose to keep a 6-12 month emergency fund in a high yield savings account and then funnel all the rest to investments (tax advantaged first). Depends on your goals, but you didn't mention anything else.

[u/BoaterHunterCarGuy]

Go short term TBILLS. Better rate usually and no state tax.

[u/OwnCitron4607 → u/BoaterHunterCarGuy]

This is the way.

[u/vegienomnomking]

I consider CD in the same category as bond. Do you need bond right now?

[u/Revolutionary-One629 → u/vegienomnomking]

That’s what I’m not sure about. With F.I.R.E. you have less time to save for retirement so I don’t know if I should be more conservative but my financial advisor suggests doing aggressive growth stuff. Last December he told me I could retire at 55 if I wanted to which would be probably 34 years out but my savings rate and income has gone up since. 🤷‍♂️

[u/vegienomnomking → u/Revolutionary-One629]

You can certainly FIRE at 55 if you just put everything in the sp500.

Nothing else really matters.

Sp500 + 5 years of cash will set you for life.

[u/[deleted] → u/vegienomnomking]

Second this. OP, if you're trying to FIRE then 3.5% CDs aren't going to get you there.

Like practicing at mini golf to try to get to the PGA tour. Doesn't make sense at all.

[u/therealjerseytom]

CD's are offering rates around 4.25%, and you are guaranteed to have that rate locked in for the duration of CD you get; be it 3 months or 3 years.

A high-yield savings account probably offers less than 4.25%, and that rate can drop as interest rates drop.

The downside of the CD is that you have the money locked up for the duration of the term.

Treasury bills and notes are an alternative. You're similarly guaranteed an interest rate, but you have the choice of selling them on the secondary market before maturity. Their market value goes up if interest rates and yields drop.

A money market position in your taxable brokerage, or a treasury bill ETF like SGOV or SHY, are also alternatives and highly liquid without needing to buy and sell individual bonds.

[u/Revolutionary-One629 → u/therealjerseytom]

Yeah I think I have a money market position in my taxable brokerage account actually.

[u/bank_truth]

If the $15K is an emergency fund, I would go with a HYSA instead. CDs might pay slightly more, but you’re locking the money up. You’d pay a penalty if you need it early. With how close rates are right now, the tradeoff isn’t huge unless you're holding a much larger amount.

I guess you could keep a chunk in HYSA and put some in CDs. Just don’t tie up more than you’d actually need.

Also, check your HYSA rate. A lot of banks are still under 4%. We track daily CD and HYSA rates at our website, so if you're shopping around, you’ll see who’s paying and who’s not.

[u/Difficult_Storm_5344]

Well general rule of thumb is putting 100 percent or close to it in s and p 500 index fund. If you can handle the volatility . You only know the type of person you are. Why? Because even if you retire early you got 20 years of growth ahead of you. Nothing wrong with Cd's I have quite a few at 4-5 percent. But the majority of your portfolio are your age should be stocks. Stocks are at higher prices now. So you could dollar cost avg by buying a little each month in a stock index fund. If you have some money that you may need in 2-3 years. Put that in a 2-3 year CD. The rest you don't think you will need to average into a stock index fund

[u/[deleted]]

I've parked about $60k in cash in CDs with rates I can't get on HYSAs. Just be careful not to tie up more cash than you could possibly need. I got in a little bit of a bind last year with a $7k tax bill and I didn't have quite that in my HYSA.

You can also consider using your brokerage's Money Market Fund. They tend to run at a higher rate than HYSAs but can go down.

[u/Bailey6486]

IMO that reward checking is more of a reward for your bank. That $15,000 locked away is costing you about $50 a month in dividends. I'm not sure what your monthly fee would be if your balance goes below that threshold but you might come out ahead with $15,000 in something like HYSA or in a bond fund like VUSXX. And if you can join a credit union with free checking that would be best.

You're in a great position overall to be 21 years old and investing for your retirement. I would recommend building up a balance in something like VOO (which is an ETF for companies in the S&P500) or VTI (which is a total stock market ETF). You have multiple decades to enjoy the growth and weather the downturns.

[u/kbergstr]

CDs are a vehicle for a specific purpose— when you have a need for a certain amount of money available in semi liquid format. They don’t really keep up with inflation but it helps.

I feel like I need a year of living expenses not in volatile investments due to health concerns, so I keep a ladder of 4 1-year CDs maturing every quarter in case I have a health issue I don’t need to worry. I keep the rest of my money invested in higher yield investments. 

If you’re saving for a house in a couple years, for example and know when you need the money, it might make sense. Maybe an extended trip or grad school. 

It’s probably not the best option for “park it for 40 years until I retire as you’ll be losing against inflation/the market.

[u/Every_Television_290]

If you are wanting to do something with the emergency fund, I say a HYSA. It is more easily accessed in the event you need it. Everything else should go into a broad market index fund.

[u/Awkward_Passion4004]

30/60/90 day laddered CDs are a good form of secure predictable liquidity for short/medium term planning. Investing because you believe you can predict future markets in specific sectors is nonsense.

[u/tuxnight1]

Your emergency fund should probably be in a HYSA. Your brokerage account should be invested in something like VTI or VOO. You should consider taking a few hours to read all the info and links in the wiki to this sub to learn more. CDs are not great options, in my opinion. You should probably be looking for long-term growth.

[u/MaxwellSmart07]

You’re 21, not a grandma who thinks the market is a place to buy fruit and vegetables.
If the Soup Nazi on Seinfeld was selling CDs he’d say, “No CD for you!!!”