Suze Orman: The One Easy Money Move Everyone Should Make Right Now
Written by
Gabrielle Olya
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Gary Dudak
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No matter your current financial situation, there is one simple move you can make right now that will help make your money work harder for you. However, you have to do it sooner rather than later, according to money expert Suze Orman.
“The smartest money move you can make right now is to lock up today’s great rates by putting some of your cash savings in certificates that have a one-year to two-year maturity,” she wrote in a recent blog post.
As Orman noted, you should do this soon to take advantage of the currently available high interest rates.
“The interest you earn on bank accounts, short-term Treasuries and money market mutual funds at brokerage firms is tied to an interest rate controlled by the Federal Reserve. When the Fed changes its Federal Funds rate, interest rates typically follow that path. And the Fed has told us that in 2024, it is likely that it will be reducing the Federal Funds rate,” she explained. “If and when that happens, the interest rates you may be currently enjoying in these short-term safe cash accounts will fall as well.”
Why You Should Consider a Certificate of Deposit
Orman recommends putting cash you don’t immediately need into a CD with a one- to two-year maturity.
“With a certificate, the interest rate when you open the account will be the interest rate for the entire ‘term’ of the certificate. There are certificates that mature in six months, in 12 months, in 18 months and longer,” she wrote. “The longer you can lock in today’s rate, the happier you will be — if, as expected, rates go down.”
Orman added, “Don’t go for less than one year, however, no matter where you decide to open a certificate.”
She noted that CDs are also a great option for retirees and those planning to retire soon. “The last thing you want is for your income to decrease as interest rates go up and down,” Orman wrote.
CDs vs. Treasuries
With interest rates as high as they are, you can likely find a CD that offers a better rate than Treasuries, which is why Orman recommends the former over the latter.
“I know some of you invest in Treasuries because the interest is exempt from state and local income tax,” she wrote.
While Orman believes this is a “smart strategy,” she notes that some CDs are offering interest rates that are a full percentage point higher than short-term Treasury yields. “So even after paying state income tax on the certificate interest, you will come out ahead.”
A Note About Emergency Savings
While Orman encourages everyone to put cash into a CD, she noted that your emergency fund should remain in a liquid account.
“As great as the certificate offers are today, I don’t want you putting all your emergency savings into a certificate,” Orman wrote. “That’s because if you need the money during the year, you will pay a penalty for making an early withdrawal. It’s not typically a big penalty, but something you want to avoid.
“With a 12-month certificate, an early withdrawal can mean forfeiting a few months of interest,” she continued. “Not the end of the world, but something to plan around. My advice is to keep at least eight months of living expenses in a money market account and consider moving the rest to a certificate.”
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