People who are retired, or nearing retirement, can also benefit from higher-priced long-term CDs because they often want to have two years of living expenses in safe cash, said Pam Krueger, founder of Wealthramp, a service that matches clients with annuities financial advisors. The paltry interest rates of recent years have punished retirees, she said, so higher CD rates of 3 to 5 percent offer welcome relief: “We’re in this golden moment.”
But given worries about the economy and uncertainty about whether the Fed will continue to raise interest rates, it is unclear how long banks will pay the high interest rates. One way to deal with the bleak outlook, Krueger said, is to create a “CD ladder,”[ads1]; in which you divide your savings into several 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 a $5,000 deposit, with 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 use it if you need the money). You can set up a ladder yourself or have a brokerage house do it for you.
Here are some questions and answers:
How can I make sure my savings are covered by Federal Deposit Insurance?
Given the recent banking upheaval, savers are particularly interested in making sure their money is protected. The Federal Deposit Insurance Corporation typically protects up to $250,000 per depositor, per insured bank. If you share an account with another person, you each get $250,000 in coverage, for a total of $500,000. (The federal government chose to insure all deposits — even those above the insured cap — 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 type of account ownership, so it’s 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 could have a joint savings account with $500,000 in it and two separate accounts in their own names with $250,000 each, and be insured for a total of $1 million, according to the FDIC’s online insurance tool.