Yay, inflation! No, really. Thanks to high inflation, interest rates have gone up (sorry borrowers) so that people who want to keep a stash of safe money and actually earn interest on it may do so.
Money markets at 4%? CDs at 5%? I can barely remember the last time safe money sounded this good.
Here is what’s interesting. In the olden days, you expected to get higher interest rates for parking your money in longer term CDs or Bonds. Not so today. If you look at CD rates for 6 months vs. 5 years, sometimes the 6-month rate is higher.
Why? Because banks don’t think that interest rates will stay this high forever, so they are unwilling to lock in paying you a higher rate, even for the privilege of keeping your money longer. I kind of agree.
For that reason, it may make sense to lock in money THAT YOU DON’T NEED for longer than one year, even if the rates for 2+ year CDs don’t go higher. You may find that your one-year CD matures and new one-year CDs are now paying 3% because interest rates have dropped.
For retirees, this is a great time to build a bond or CD ladder and lock in higher rates for your next few years’ spending without the fluctuation in principal of bond funds.
To discuss further, email me at kristi@sullivanfinancialplanning.com to set an appointment.
