Best Place To Put Your Cash Right Now

one of the effects of the banking problems that occurred earlier this year is it's making it more difficult for small businesses to borrow money right now which the American economic engine is based on small local businesses and so the Federal Reserve ironically enough is likely not to engage in raising interest rates by any significant amount moving forward as a result of the problems that happen with banks that needed FDIC backup for accounts Beyond a quarter million dollars from the FDIC system and we are almost certainly near a peak in interest rates just about there interest rates may stay there for a while but then they're going to start coming down and I I watch patterns and there's a clear pattern right now in the financial markets if you put money in a one-year CD at most financial institutions you're now earning a higher rate of interest than you would on a five-year CD very that's known as an inverted rate curve because usually the longer you tie up your money the higher in interest rate you're rewarded with for giving up some freedom and tying up your money longer and so normally I talk about you know money you don't need in the next few months or next year that there's an advantage to buying a longer term CD and I talk about the CD ladders I've talked about it uh gosh for decades the idea that if you divide your money into piles and you first buy a one-year CD and a two year at the same time one year two year three year four year five year and then every year you've got twenty percent of your money back available to you if you don't need it you buy a new five-year CD and you always have twenty percent of the money you parked in CDs available to you that's called the latter and the idea is to eventually get all your money in five year because you earn the most money in it except now because the markets are pricing in a slowing economy and reduced inflation inflation is still with us but down significantly from where it was before and so interest rates may well be uh really close to their Peak so what institutions are paying varies wildly on any CD and you have the ability to shop around and find the best deals available right now on Five-Year CDs so money you know you're not going to need for a good long while that is money you don't want to invest but you'd like to have it in reserve and savings this is a time that's a really good idea to buy a longer term CD like a five-year CD so how would you do that how do you shop around how do you find it all right this is a twofer I've talked through the decades also about why you buy CDs through a discount broker instead of buying them directly from a bank because Banks tend to offer two rates one on their wholesale side and one on their retail and they take advantage of their most loyal customers that go direct to them to buy a CD and offer a better deal through discount brokers because they're trying to grab some what's known as hot money there are people that are brand loyal first then there are people that want the best deal first so if you buy your CDs through the discount broker you've got as I called it a twofer you've got magnified FDIC Insurance because through the discount broker they can place your money with so many institutions you have millions of dollars of FDIC insurance coverage where with a single institution you only have a quarter million and they're able to get you the best rates better than you're likely to be able to find on your own now it is true that at most places you're going to find a lower interest rate on that five-year versus a one but think about it you take that higher rate for a year five point something percent if you shop around for one year CDs versus probably four point something on the five year what happens a year from now let's say we're in a mild recession uh let's say we've truly broken the back of inflation a year then when you go to buy a new CD a year from now the rates may be much lower than they are now so that's the advantage of doing a ladder even today the money you know you're really not going to need for 60 months put a meaningful amount into a five-year CD money that you feel like you'd like to hedge your bet some because who knows for sure which way interest rates are going to go you can do it one year and yes you'll get the higher rate on the one than the five but you the five-year money you know you'll get at least that four point something percent for the next five years which is very favorable one thing never to do this is a never rule unless you hate your money you have to hate your money to do this go to Bank of America Wells Fargo Chase or Citibank to buy CDs because they play you for a fool they pay such ridiculously low rates on their CDs they're taking advantage of you you let regular old savings sit in Bank of America Chase City or Wells Fargo they're playing you as a fool again don't let them do it and remember the discount brokers are your best friend places like wealthfront betterment Schwab Fidelity Vanguard that's where you're going to get the best deals FDIC insured on your CDs and on your savings as well

Channel: Clark Howard: Save More, Spend Less

Views: 78,621

Keywords: clark howard, clark, money, financial literacy, finances, money podcast, podcast, financial podcast, consumer, consumer advocate

Id: V01Rxw0cjDU

Length: 6min 55sec (415 seconds)

Published: Sat May 06 2023