June 8, 2023 • By Alisa Wolfson
For years, CDs paid abysmal rates. But the Fed’s consistent interest rate hikes mean that certificates of deposit — savings vehicles that pay a fixed amount of interest over a set period of time — are now paying their highest rates in about 15 years. (You can see some of the best CD rates you may get now here.) That said, are they right for your retirement strategy?
With some CD interest rates topping out over 5%, if you have a lump sum that you can set aside in a CD, you’ll be guaranteed that high rate of return by the time your CD matures. “If someone has some cash they are likely to not need for the short term that lines up with a CD offer, it might make sense for someone who values the locked-in rate,” says certified financial planner Charles Thomas III at Intrepid Eagle Finance. Adds Chanelle Bessette, banking specialist at NerdWallet, “CDs are also inherently less risky than investing in the stock market, which makes them a good option for retirees.”
But building a successful retirement strategy is predicated on balancing risk and return of your assets with the appropriate time horizon and risk tolerance. “A popular strategy to utilize is segmenting funds for different time horizons and employing a time-released withdrawal methodology,” says Peter Salkins, certified financial planner at Integrated Partners.
That means, funds needed for the short term, defined as less than 5 years, should be invested conservatively under this approach, in segments like money markets, CDs and short-term Treasuries. “By investing in these types of assets, someone could minimize or eliminate the volatility of the stock and bond markets for funds needed in the short term. This will allow any funds that are invested in more volatile asset classes the time to recover and produce positive returns,” says Salkins.
