As tax season approaches, many Americans eagerly anticipate receiving tax refunds. While it can be tempting to use the extra cash for frivolous purchases, financial experts suggest that investing the money in a certificate of deposit (CD) could be bright for those looking to improve their long-term financial stability.
CDs offer higher interest rates than traditional savings accounts in exchange for a commitment to keep the money in the account for a set period. With the Federal Reserve raising interest rates in response to high inflation levels, many CDs offer impressive annual percentage yields (APYs), with some 1-year CDs providing over 5%.
Matt Willer, managing director and partner at Phoenix Capital Group, says, “This is a nice time to consider a CD if you are a risk-averse investor. Rates appear to be heading toward the end of 2024, so locking in a reasonable rate before that is advantageous.”
By opening a CD now, investors can take advantage of today’s high rates and lock them in for the entire term of the CD. CDs are also a safe place to store cash, as they are typically FDIC- or NCUA-insured up to $250,000 per depositor per account and come with fixed interest rates, allowing investors to know exactly how much they’ll earn.
Investing in a CD can also help diversify a portfolio and act as a safe-haven asset during times of uncertainty. CDs can also help investors achieve their savings goals by requiring them to keep their money in the account for the entire term, thus discouraging them from tapping into the money before the account matures.
Since CDs come in various terms, investors can choose options that align with their financial goals, whether short-, mid- or long-term. For those looking to make the most of their tax refunds, investing in a CD could have a meaningful impact on their long-term financial stability, helping them achieve their savings goals and protect against future interest rate decreases.
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