That’s why I don’t transfer my money to a CD anymore

Featured Sponsor

Store	Link	Sample Product
UK Artful Impressions	Premiere Etsy Store

Key points

• The S&P 500 offers more attractive returns for investors with a long time horizon.
• Today’s CD rates average between 4.25% and 5%.
• The S&P 500 is about 87% below its all-time high, which could present a lucrative opportunity for investors

A certificate of deposit (CD) lets you park a lump sum in a savings account for a fairly competitive interest rate. You’ll be earning income consistently, but there’s a catch. You will lock up your money for the life of your CD (between three months and five years) and risk losing interest if you try to withdraw funds.

CD rates they have attracted many new depositors lately, as APYs average 4.25% to 5%. And while today’s CD rates are the highest we’ve seen since the 2007 recession, there’s a big reason I’m still not locking my money into a certificate of deposit.

The stock market has greater potential

A CD is a low-risk deposit that can guarantee a fixed interest rate for a certain period of time. When you sign the CD deal, you know roughly how much your money will grow – as long as you don’t breach the contract – and the FDIC Insurance makes sure you at least get your principal back.

And while that can bring security to those who hate risk, for investors who are willing to take on more risk, it can mean missing out on even greater returns on investments with greater potential, such as stocks and ETFs.

If you have a long time horizon (five to 30 years), the stock market could give you returns that no CD could even dream of offering. There is risk – you can lose your investment – ​​but long-term returns typically average much higher than those of fixed income securities.

Actions… inside This market?

I can already hear the objections… stocks? Right now? Hasn’t the stock market been frozen?

Yes, it is AND absolutely be crushed. Which makes it a great entry point today. Many companies with long-term growth potential have been valued below what their fundamentals would otherwise lead to believe. And the S&P 500 (an index of the top 500 companies in the United States) is about 86% lower today than its all-time high of $4,793 on Dec. 21, 2021.

Past performance does not guarantee future returns, but perhaps a comparison could shed some light on the opportunity before us.

After the 2007 financial crisis, the S&P 500 plunged and finally bottomed out at about $676 on March 9, 2009. If you had invested $10,000 in the S&P 500 that day, you would have bought about 14.79 shares. That same holding would be worth about $61,230 at today’s price and $70,888 at its all-time high of $4,793, a yield of 612% and 708%, respectively.

Now, it’s unlikely you’ll be able to time the market right and buy S&P 500 stock at an all-time low in this bear market. But even if you had waited a year later until March 9, 2010, your $10,000 would still have grown 362% to $36,201. That’s a 13-year period, which is about seven years longer than the longest period on a CD (five years), but significantly higher than today’s maximum CD rates.

Should you get a CD?

If fixed income is your jam, then yes, you should consider buying a CD today’s rates. Indeed, some signs point to long-term CD rates may have a downward trendwhich could make now the last time to lock in high rates before they start to fall.

But if you’re looking for more potential, now might also be a good time to invest in the S&P 500. And hey, if you want the best of both worlds, nobody’s stopping you from splitting your money and depositing half in a CD and half in a brokerage account. You could benefit from fixed income, as well as the potential for higher stock returns.

These savings accounts are FDIC insured and could make you 12x your bank

Many people are missing out on guaranteed returns as their money languishes in a large bank savings account that earns almost no interest. Our picks of best online savings accounts it can earn you 12 times the national average savings account rate. Click here to discover the best-in-class picks that earned a spot on our list of the best savings accounts for 2023.