Place strategy

This might be the worst place to put your money right now

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Any money you have saved for emergencies should be placed in a savings account and kept there. This way you will have access to that money when you need it.

But what if you have extra cash that you don’t need in an emergency, but you’re also not ready to invest? You may be saving to buy a house within the next five years. Investing this money is not the best decision, because if the value of the shares drops, you do not give yourself much time to recover. At the same time, you may not want to limit yourself to the minimal interest a savings account will pay on your home down payment.

In this situation, a Certificate of Deposit (CD) might be a reasonable compromise. CDs generally pay higher interest rates than savings accounts, and they offer the advantage of ensuring that you won’t lose your main deposit (whereas if you invest that money, you could suffer losses if the value of the shares falls).

But if you’re going to open a CD now, you should definitely stick with a short-term CD. In fact, opening a long-term CD is one of the worst financial mistakes you can make today.

Why It’s Beneficial to Avoid Long-Term CDs

There’s a reason CDs generally offer higher interest rates than savings accounts. In exchange, they ask you to lock your money for a pre-determined period of time.

Usually, the longer the term of your CD, the higher the interest rate you will be entitled to. This also applies today.

One thing you need to know is that today’s long-term CD rates really aren’t very attractive. In fact, if you sign up for a five-year CD today, you might not get more than 1% interest on your money. And it’s just not worth it.

Right now, CD rates, like savings account rates, are rock bottom. And so there’s no sense in locking yourself into a longer-term CD, because there’s a good chance that rates will rise over the next few years to more attractive levels. But if you sign up for a five-year CD at 1%, you might not earn minimal interest for years – unless you cash in your CD early with a penalty and lose money. money that way.

Stick to short-term CDs

If you’re going to open a CD right now, it’s a good idea to limit yourself to a one-year CD, and nothing more. That said, today’s one-year CDs don’t earn much more interest than what a savings account might earn you. And so, for that tiny difference, you might be better off sticking with a regular savings account and giving yourself more options and flexibility with your money.

When interest rates are higher, opening CDs makes sense, especially in situations where you don’t expect to need your money right away, but don’t want to risk it. ‘invest. But right now, interest rates are so low across the board that CDs have largely lost their appeal, even in the short term.

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