People who are retired or nearing retirement may also benefit from longer-term CDs at higher rates because they often want two years of living expenses in securely held cash, said Pam Krueger, founder of Wealthramp, a service that helps customers with brings together honorary financial advisors. The meager interest rates of recent years have punished pensioners, so higher CD interest rates of 3 to 5 percent are a welcome relief: “We are in this golden moment.”
But amid worries about the economy and uncertainty over whether the Fed will hike rates further, it’s unclear how long banks will pay the high interest rates. One way to deal with the bleak outlook, Ms Krueger said, is to create a “CD ladder,” where you split your savings across multiple CDs with different maturities. The approach aims to maximize the interest earned while allowing periodic availability of funds.
For example, if you had $20,000, you could open four CD accounts, each with $5,000 in deposits and terms of three, six, nine, and 12 months. When the three-month account matures, you can reinvest the money into another 12-month CD (or spend it if you need the money). You can set up a ladder yourself or hire a realtor to do it.
Here are some questions and answers:
How can I make sure my savings are covered by federal deposit insurance?
With the recent upheaval in the banking sector, savers are particularly keen to ensure their funds are 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’ll get $250,000 of coverage each, for a total of $500,000. (The federal government has decided to insure all deposits — including those above the insured limit — at the two banks that failed in March. But there’s no guarantee the government will do so in the future.)
The FDIC also insures funds by account holder type, so it is 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 of $500,000 and two separate accounts in their own names of $250,000 each, and be insured for a total of $1 million, according to the FDIC’s online insurance tool.