Suze Orman: CDs ‘Can Make Sense Now,’ But Aren’t a Magical Investment Solution

4 min Read

Picture Perfect / Shutterstock.com

Finance guru Suze Orman recently offered up a take regarding the silver lining of rising interest rates — faster ways to save. And that includes investing in certificates of deposit, or CDs.

Her new guide to CDs explained: “Ever since the financial crisis began in 2008, it has generally not been possible to earn much of an APY (annual percentage yield) on most CDs.”

Rising interest rates and the growth of online banks with low fees and higher interest rates, however, have changed that.

Orman’s new guide explains the basics of CDs, how they differ from traditional savings accounts and how to get the best rates.

Why CDs Differ from High-Yield Online Savings Accounts

CDs and high-yield online savings accounts both currently offer interest rates from roughly 1% APY up to 4% APY and sometimes even higher. Both are either FDIC (Federal Deposit Insurance Corporation) or NCUA (National Credit Union Administration) insured for up to $250,000 per account holder, per account type.

Investing for Everyone

But there are some significant differences you should understand before deciding where to put your money.

Investing for Everyone

In general, the longer the term, the higher the APY. However, sometimes CDs deliver the highest APY for popular one-year terms. For instance, Forbright Bank currently has a 12-month CD with an APY of . Keep an eye open for special promotional rates like these.

Why Suze Orman Says CDs Are Not a Magical Savings Solution

Locking your money into a fixed interest rate could be a gamble. If you think interest rates will continue to rise, you may not want to keep your money in an account at a fixed interest rate for 12 months. On the other hand, if you think interest rates will fall, it’s a good idea to lock in now.

Right now, economists aren’t certain what steps the U.S. Federal Reserve will take regarding interest rates over the next several months.

Investing for Everyone

Also, Orman warned against tying up money in an account where you might have to pay penalties and fees to access it. First, you want to have substantial savings already tucked aside for an emergency, plus at least one year of living expenses.

For retirees, Orman recommended increasing that savings goal. “You know I think you should have a few years of living expenses set aside in safe savings (in addition to your regular emergency savings),” she said in her guide.

Having three to five years in savings can help retirees avoid touching their stock investments in a bear market, she said.

And, she added, you shouldn’t look at CDs as a magical solution for retirement savings. “To have the best shot at earning long-term inflation-beating gains, you need to be invested in the stock market. But for the safe part of a diversified portfolio, CDs can be a smart complement to savings accounts,” Orman wrote.

More From GOBankingRates