It seems they are starting to see notices in their mail coming from their bank, informing them about their matured one-year CD if they’re among the millions of American savers who locked in high interest rates on Certificates of Deposit last year. The data of the Federal Deposit Insurance Corporation study by The Financial Brand reveals that the value of time deposits to be matured by October will amount to $ 950 billion. But that is not all or rather let me correct myself it is not half of it. According to the data revealed within the subsequent twelve months about $2. Experts have warned of what they refer to as ‘the maturity tsunami’ as $5 trillion in CDs will mature soon.
What Should You Do When a CDGets to the Maturity Stage
When your CD reaches maturity, you have several choices: When your CD reaches maturity, you have several choices:
- Roll Over to a New CD: As such, you can opt to renew your CD at the current rate; though this may be a lower amount than what you negotiated earlier.
- Move to a Different Institution: There is the possibility of searching for better rates on other banks or credit unions that could get better returns.
- Consider Alternative Investments: In case of other financial objectives then it would be more advantageous to consider other vehicles such as the money market accounts or annuities.
The Reinvestment Risk Challenge
To those who invested their money in 12-month CDs last year, the problem is in the fact that the existing CD rates are probably lower than what you agreed to. This leads to what is known as reinvestment risk where indeed when your fixed-term investment matures, the interest rates may be lower.
According to financial advisor Jeremy Keil, “The highest rates today are often for the shortest terms. If you lock in for a year or more now, you might get a lower rate than what is available in a money market account. ” Money market rates, in turn, can lower; that is why short-term locking options are not very attractive.
The next entry explains how you can achieve maximum returns, on how to realize the greatest potential out of your investments.
The same can be said for individuals who have some idle cash and want to safely invest it, locking in a certain good interest rate for a couple of years is perfectly reasonable. However, it may not always be in your best interest to continue to ‘roll over’ your existing CD with that institution. Best and last, Mary Grace Roske, head marketer of CD Valet: “Don’t let your CD automatically renew. ” The major national banks tend to offer lower percentage rates and so, you should haggle or switch to an online.
Which Maturity To Select When Opening Your Next CD
If you are put in a position similar to having a CD maturing in 12 months then you might want to take a longer term this time. However, when it comes to choosing financial products, the public’s interest is increasing in 2-year CDs, but still, the 12-month CD seems to be the most favored. But if you prefer to fix a higher rate for a longer term, it would be helpful in your financial planning as you won’t require the money that soon.
For those willing to look for other forms of investments, multiyear guaranteed annuities (MYGAs) may provide better rates than CDs, although the penalties in the case of early withdrawal of money are higher and there is no FDIC insurance.
Is It Worth Speculating on the Stock Exchange?
Keil advises that funds for the mid-term should not be relocated to the stock market because of what is happening to CD rates. “Short-term money should be put in short-term securities while long-term money should be put in long-term securities he says. The stock market is not so suitable for the funds you intend to spend within the near coming years.
Before one retires, it is wise to rebalance one’s portfolio to achieve liquidity when required. Keil says, “I was once talking to someone who had planned to retire in a year and a half and wanted $2 million He had six months till retirement now he was in Canada worth $ 2.4 million while he should have been guaranteed $400,000.
Final Thoughts: Travel tips: Planning your next move
If you have learned how to properly time your cash flows and when and where to invest due to the maturity tsunami then now is the right time to start planning where next. Whether rolling over to a new CD, diversifying into other investment forms, or providing for gains for retirement, here are the ways to make the right decisions in this economic wave.
Do you have questions concerning investment, planning your budget, or how to make more of your money? Contact me with your questions and it’s time for your portfolio to be shaped.
