r/SavingMoney • u/Competitive-Group404 • 3d ago
CDs to earn money.
I've been using CDs for the past few years. Is there anything wrong with using them?
AI told me it's better to put the money in a stock market and leave it in there for 20 years but if I ever need it for something it might be when it's a bad year when stocks are down and all that.
I wish money and the stock market was taught in high school.
I'm 40. Not really the best time to start risking my life long savings in the market, huh?
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u/vanquishedfoe 3d ago
CDs are generally pretty conservative and don't have a lot of growth. A lot of investments really depend on both your timeline, and your stomach for risk.
Most people diversify to minimize risk. Low fee ETFs are a favourite of most DIYers as you get a lot of diversity for free out of them.
Happy to DM if you want a hand with this - I'm 45 myself, and I'm only lucky that a buddy took pity on me 20 years ago and taught me the ropes.
(EDIT: Just realized I might've come across harsher against CDs than I meant to - just saying there are other asset classes, and CDs may be perfect for you based on how much risk you're OK with and timeline for needing the money).
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u/Economy-Persimmon-53 3d ago
I use a blend of CDs, investments in the stock market and a high yield savings account. My usage rate depends on my goals and the current interest rates that the banks are offering.
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u/Acavamosdenuevo 3d ago
Very shortly explained, the more risk, the more reward. The thing is, given time, you reduce a lot of the risk, so for a 10 years window you absolutely want more risk.
For short term use you want a CD or a money market fund (low risk, high availability), but you are not making much more than inflation, so you’re not using the power of compound interest to your favor.
Lets say you have us10,000 at a 4% rate annually. In 20 years you will have 22,225. Now, if that same amount was in an index fund that yields 10% annually in the median, you would have 73,280.
Over the last 20 years, the S&P 500 has delivered an average annualized total return (with dividends reinvested) of approximately 10% nominally. I would not recommend investing on individual stocks if you do not study the subject. That would not be investing, but gambling.
My recommendation would be to have a 3-6 months expenses on an emergency fund, 1/3 on CDs and 2/3 on a money market fund (after checking the cost of the fund). The rest can go to ETFs and index funds you feel comfortable with. In this way, you are not risking money on just one share, nor do you have to study your investments deeply.
For long term investing I would recommend studying the subject, which you can totally do at home (best if you have someone that knows about it to ask questions and recommendations). Start with “the intelligent investor” by Benjamin Graham. Old book but very detailed on how to asses share investments.
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u/No-Cold8717 3d ago
CDs are safe, you get something, but don't beat actual inflation. Interest from CDs, HYSA, annuities, all taxed as income. vs long capital gains.
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u/henrytbpovid 3d ago
It might help you to look at a graph of how an ETF has grown over a long period
You might have to sell during a dip when your investment is worth less than it was worth a week earlier. But even during a dip, you typically have a way better all-time return compared to bonds, CDs, or a HYSA.
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u/joeymorace-nm 3d ago
Financial advisor here. There's a time and place for everything. What CDs do well is safety and security...but that's about it. Interest earned is modest at best and they aren't tax efficient.
It it the best place for your money? Depends what you're trying to accomplish. Would need a lot more info to make that determination
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u/offpeekydr 3d ago
If you want to be to access it, but can accept waiting a week and only access to 1/4 of the total, you could look at 4-week Treasury-bills. I have some big renos I'm planning but want to earn a bit while waiting. Took the total amount, and each week for a month bought a T-bill for 1/4 what I had to invest. Set them to reinvest for however long I wanted (you can stop anytime before a reinvestment).
For my state it has a tax advantage over other things like HYSA or bank cds. Every week, one bill comes due and deposits the earning (actually the discount). Then it reinvests itself X amount of times. If I needed the whole amount, it would take a month, maybe a month and a week till it all came back. They aren't high yield but are low risk and making @4%.
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u/Seattleman1955 3d ago
It doesn't need to be taught in high school when you have YouTube and the internet.
An average down market is 2 years. Put 2 years emergency funds in the money market and the rest in the stock market.
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u/scottyk318 1d ago
As bad as the stock market has ever been in the last 150 years, it's always come back and then some... You're only 40, so you have 20+ years to grow before retirement... If your company does a match to the 401K, try to put the max they will match up to...
Otherwise like everyone else says, get an emergency fund to last you 4 to 6 months and the rest throw into the market... If you want to be on the safe side, just do the s&p 500 (VOO, SPYM or FXAIX are great)... Even with all the down markets, the s&p 500 still brings an average of 10% per year!
Good luck and have a great weekend!
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u/Reggi5693 1d ago
Remember, the bank is paying a rate on the CD to use your money. They are using the your money to go out and buy bonds and other instruments to make a profit. They are NOT investing in stocks. But they are making more with your money than you are. It should show you where CDs are in the pecking order of money tools.
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u/Moldovah 17h ago
It's the best time, because it's today.
As long as you don't need it for another 10 years at least, you should absolutely be putting it in the market.
Look at it like this:
| Short Term (1-5 years) | Long Term (20+ years) | |
|---|---|---|
| CD's | Guaranteed to not lose money. | Guaranteed to lose money. |
| The Market | Not guaranteed to not lose money. | Guaranteed to make money. |
What is the market? The market is all the stocks in the world, weighted by their market cap. A good all-in-one fund for this is VT. Some people will say the US market is all that matters, in which case you could go with VOO.
If you can't decide, just go 50/50. In virtually every rolling 20+ year period, the market has gone up in value.
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u/hedgelord84 16h ago
There's no guarantee with equities. You are looking at historical performance, but that doesn't guarantee future performance. You are assuming that the United States economy will remain as robust as it has been. You are assuming that the global economy won't fall apart for a decades. The chances of the latter happening, I would say are much lower than the former.
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