I've Got $50,000 Burning A Hole in My Pocket. Where Do I Park It Amid Rate Cuts So I Don't Lose Ground?
Why a mix of CDs can protect $50,000 from shrinking yields.
Question: I have $50,000 saved. Where should I park it before a rate cut could happen?
Answer: You'll want to find a savings solution that's resistant to rate cuts. That way, you maximize your savings while rates are still higher. Thankfully, you have some time to act.
The Federal Reserve didn't cut rates at its January meeting, and is unlikely to do so again when it meets this week. With weak job numbers and inflation rising due to increased gas prices, the Fed is in a wait-and-see mode, giving savers some time to capitalize on higher rates.
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A way to maximize returns and shield against future rate cuts
If you're looking to protect your cash from rate cuts, a CD is a smart option.
A certificate of deposit (CD) features a fixed interest rate. Once you lock in your CD rate, it remains in effect for the entire term. The Fed could cut rates multiple times during your term, and it wouldn't impact your savings at all.
Using this tool, powered by Bankrate, can help find options that work best for your needs:
But if you are sitting on a wad of cash, a balanced savings approach can maximize yields now while granting flexibility for future investments.
A strategy that keeps you ahead of the game, with flexibility
One strategy is to open multiple CDs at various terms. Doing so now ensures you lock in higher CD rates to maximize returns. But it also achieves another positive: You'll gain quick access to some of your money.
Here's how it works:
- Put $25,000 in a one-year CD. A top-performing account we found is Limelight Bank. You'll earn 4.10% with a minimum deposit of $25,000. In that year alone, you'll earn $1,025 effortlessly.
- Deposit $20,000 into a five-year CD. Our top pick is SchoolsFirst Credit Union, with a rate of 3.90%. Over five years, that'll earn you $4,216.30.
- Lastly, place your remaining $5,000 into a no-penalty CD. Farmers Insurance Federal Credit Union offers a rate of 4.00% for a nine-month term. This will net you $149.26 in interest earned for a mere six months.
Overall, this approach helps you earn $5,390.56 for a few minutes of work setting up the accounts.
Best of all, you'll only tie up half of your money for the next five years. The rest you'll have back within the year, and you can reconsider investment or savings options, depending on how the market does.
What I would caution with this approach
CDs are generally not a flexible savings tool. Term-based CDs require you to store your money until maturity, or face substantial withdrawal fees. For shorter-term CDs of a year or less, this could mean losing a few months of interest.
For long-term CDs of five years, this could mean penalties equivalent to up to one year's interest. Only consider this option if you're comfortable locking away $25,000 for five years.
Ultimately, the Fed is unlikely to cut rates when it meets this week. In fact, they might not lower rates again until fall. However, you can adopt strategies that help maximize returns now, while rates are high. This approach keeps you aligned with your goals, regardless of the Fed's future actions.
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