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You did it — you successfully concluded your career, and now you’re no longer earning a regular paycheck from a job. Instead, you’re relying on Social Security, your investments, and maybe a pension (if you’re lucky).
Is it worth putting some of your hard-earned cash into certificates of deposit (CDs) at this point in your life? Absolutely — and here’s why.
1. CDs are basically risk-free
Assuming you’re opening them with FDIC-insured banks (or NCUA-insured credit unions), CDs are a risk-free way to grow your money over time. Standard FDIC limits protect up to $250,000 of your cash in a deposit account like a CD. This means that if your bank goes under, you won’t lose your money. This will surely help you sleep better at night.
In addition to this protection, the cool thing about a CD is that you can do the math when you open the account and figure out (based on the term, rate, and your deposit) how much money you’ll have at the end of the account’s term. You can’t say this about, say, stock market investing — especially not over a short period. For example, if you open a 1-year CD paying 4.5% and put in $5,000, after a year, you stand to earn $225, and will then have $5,225.
2. A CD ladder can give you predictable income
If you’ve got a good-sized chunk of money you want to earn predictable and risk-free interest from, why not consider building a CD ladder? Let’s say you have $50,000 you want to put into CDs. You could divide up that money in five $10,000 chunks and use it to open:
- A 1-year CD
- A 2-year CD
- A 3-year CD
- A 4-year CD
- A 5-year CD
This way, you’ll have some money freeing up every year. And when it does, you can use it — or put it into a new 5-year CD and let it continue growing. You can also build your CD ladder with shorter-term CDs alongside longer-term ones if you’d rather have money coming available more often. Interestingly, these are the CDs paying better lately, thanks to the higher federal funds rate. According to the FDIC, the average rates on CDs with terms ranging from three to 24 months are higher than those on CDs with longer terms.
3. CDs are easy to open
Finally, you should consider CDs as a retiree because your time is precious. The odds are you have a million better things to do than make a trip to the bank and wait around to speak to a representative about opening a CD account.
Thankfully, many of the best CD accounts available these days are offered by online banks, which don’t have physical branches. This means you can easily open an account on your computer, without even putting shoes (or pants) on. It’s also easy to compare rates, since they’re available online; we rate the best CDs here at The Motley Fool Ascent.
It’ll be easier to open a CD with a bank you already do business with since that bank already has your information and if you have money at that bank, you can quickly transfer it to fund your new CD. But even if the bank is brand new to you, it’s still not difficult to link a savings or checking account at another bank and move the cash over. In short, investing in CDs can save you a lot of time — once the account is open and funded, all you have to do is sit back and wait for your interest to grow.
CDs are certainly worth your time and money as a retiree. It’s a good idea to diversify your income streams, and if you already have a 401(k) or individual retirement account (IRA) alongside Social Security payments, CDs will provide one more way to ensure your financial needs are met. Why not give CDs a closer look today, since rates are higher than we’ve seen in years?
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