I am not a young buck, that’s for sure. And yet, even so, I recently opened my very first CD. You might be wondering, “Why would someone over 40, in their prime earning years, open a CD instead of putting money into higher-yield investments?” It’s a good question, and I have some good answers.
For me, it really comes down to financial security, interest rates, and the balance a CD brings to my portfolio. Let me explain why it makes sense for me, and why it might for you too.
CDs offer stability and predictability
When I recently went over my current portfolio with my financial advisor, we saw that most of my investments were tied to the stock market. And while they have been good to me, and still have growth potential, growth potential equals risk. And financial risk is something that interests me less and less as I have gotten older.
CDs, on the other hand, are nearly risk free. They are FDIC insured, and offer a predictable, stable return over a set period of time, usually three months to five years (these days, shorter-term CD interest rates hover around 4.5%).
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American Express® High Yield Savings 
APY 4.00%
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APY 4.00%
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Capital One 360 Performance Savings 
APY 4.00%
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APY 4.00%
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CIT Platinum Savings 
APY 4.55% APY for balances of $5,000 or more
Rate info Min. to earn $100 to open account, $5,000 for max APY
Member FDIC.
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APY 4.55% APY for balances of $5,000 or more
Rate info |
Min. to earn $100 to open account, $5,000 for max APY |
Given that, having a portion of my money in a low-risk vehicle like a CD feels like a smart move. Indeed, for risk-averse folks like my wife and I, CDs are actually pretty appealing.
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It is always a good idea to have an emergency fund. In my case, my emergency fund consists of six months’ worth of living expenses. My wife and I keep that money in a regular savings account, earning regular (read: little) interest. Because CDs require that you lock up money for a set period of time, they are not a good place for emergency funds.
But what they are good for is as a place to keep cash beyond your regular savings amount and emergency fund because you will earn more interest on your money there. The interest rate you earn on a CD is fixed for the term, meaning it won’t fluctuate the way a savings account APY does. That was another selling point for us.
A CD rounds out my portfolio
I was more aggressive with my investment portfolio when I was younger, but not now. At this stage, my main goal is to build a well-rounded, balanced portfolio, and that means both growth and security. While I love my IRA, CDs give me more security as they are not tied to the market. Fixed terms and interest rates higher than traditional savings accounts mean I am still growing that money, albeit more slowly, but also with less worry.
A tax-advantaged retirement account is a great way to grow your money for your golden years — check out our picks for the best IRAs.
So yes, we have some very good reasons for opening a CD after the age of 40. While it might not seem like the obvious choice, if you are looking for balance, financial security, and predictability, opening a CD just may make sense for you, too.