People who are retiring or nearing retirement can also benefit from longer-term CDs with higher rates because they often want their living expenses in safely held cash for two years, said Pam Krueger, founder of Wealthramp, a service that links customers with financial advisors for a fee. The paltry interest rates of recent years have been a punishment for retirees, she said, so higher CD rates of 3 to 5 percent offer welcome relief: “We’re in this golden moment.”
But given concerns about the economy and uncertainty about whether the Fed will continue to raise rates, it’s unclear how long banks will continue to pay the high rates. One way to deal with the murky outlook, Ms. Krueger said, is to create a “CD ladder,” where you divide your savings into several CDs with different maturities. The approach is aimed at maximizing interest earned while enabling periodic availability of funds.
For example, if you had $20,000, you could open four CD accounts, each with $5,000 deposits, with terms of three, six, nine, and 12 months. When the three-month bill expires, you can reinvest the money in another 12-month CD (or spend it, if you need the money). You can set up a ladder yourself or have it done by a real estate agent.
Here are some questions and answers:
How can I make sure my savings are covered by Federal Deposit Insurance?
Given the recent turmoil in the banking system, savers are particularly interested in making sure their money is protected. The Federal Deposit Insurance Corporation generally protects up to $250,000 per depositor, per insured bank. If you share an account with someone else, you each get $250,000 in coverage, for a total of $500,000. (The federal government chose to insure all deposits — even those above the insured limit — with the two banks that failed in March. But there’s no guarantee the government will in the future.)
The FDIC also insures funds by account type, so it’s possible to get more than $250,000 in coverage per depositor at the same bank, depending on how the funds are held. For example, a couple might have a joint savings account with $500,000 in it and two separate accounts in their own names with $250,000 each, and be insured for a total of $1 million, according to the FDIC’s online insurance tool.
