CDs Are Back In Style

For the past 20 years or so, old-fashioned saving has gone out of style. Back in the 1980s and 1990s, you could build a fairly respectable—and guaranteed—return on your retirement portfolio by buying bank certificates of deposit.

Since then, of course, we’ve encountered one seemingly endless economic crisis after another—the dot com bust, the 2001 terrorist attacks, the 2008 global financial crisis, and the 2020 Covid-19 pandemic—that have basically forced the Federal Reserve to lower interest rates to or near zero percent.

That policy, of course, largely destroyed the CD (certificate of deposit) market and forced savers, however reluctantly, to buy stocks instead, because There (Was) Is No Alternative, or TINA.

If you wanted to earn any kind of return on your portfolio, you really had no choice but to buy stocks, either directly or through mutual funds and ETFs.

And that strategy has paid off pretty nicely for most people over the past two decades, provided they could stomach the roller coaster ride that the stock market has put them through over that time.

Until now.

Now the Fed has suddenly re-discovered monetary restraint in the form of higher interest rates to slay the inflationary beast it helped to create.

Since the end of last year, when the Fed finally came around to the notion that inflation wasn’t transitory and signaled that the party was over, stocks and bonds have tanked. If your retirement portfolio is only down 15% or so since then, consider yourself lucky.

But there is a positive flipside to the Fed’s new hawkish interest rate policy, and that is that it is now fashionable—and financially savvy—again to start shopping in the CD market. (If you’re in the market to buy a house, however, with mortgage rates now at 7% and rising, I’m afraid you missed the boat.)

Instead of following the stock market’s gyrations, mostly southward, here’s something that might cheer you up a little. Visit the brokered CD page on Schwab or Fidelity or wherever your account is and take a look at the rates being offered. I think you’ll be both surprised and pleased. You’ll want to party like it’s 1999. Continue reading "CDs Are Back In Style"