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Record Cash Levels & Certificate of Deposits (CDs)

A bank Certificate of Deposit (CD) offers several benefits as part of your portfolio and cash savings plan.  When you purchase a CD you agree to leave your money with the bank for a specified period of time – typically ranging from a few months to a few years.  In return the bank pays you a fixed interest rate over that time.  Just like high yield savings accounts bank CDs are typically insured by Federal Deposit Insurance (FDIC) up to applicable limits. 

One downside with CDs is you keep your money committed to be locked away for a pre-determined amount of time.  So proper cash-flow planning is key.  However, while all banks differ, you most likely will just face penalties for an early withdrawal.  However, that can eat way at your earnings or even result in loss of principal. 

Cash Savings in CDs

CDs versus High Yield Savings Accounts

If keeping higher cash balances CDs have the ability to potentially lock in rates.  This could potentially be something to consider in the current interest rate environment.

The Federal reserve is currently forecasting cutting interest rates in the coming months ahead.  Ending one of their most aggressive interest rate tightening cycles in many years.  While the ultimate path of rates is unknown, historically rates have tended to fall sometimes faster than expected. 

  • The addition of some CDs and locking in today’s attractive rates may be similar to families who were able to refinance their mortgages several years ago at record low levels. 

  • Different rates across the time horizon have the ability to spread out yields and maturities.  For example, a barbell approach might purchase a 12 Month CD, 18 Month CD, and a 36 Month CD with equal dollar amounts.

Key Difference – The difference between high yield savings accounts and CDs is savings accounts rates are completely variable and can float up or down while a CD rate is locked in.

How much Cash?

Having adequate cash reserves is a key piece of prudent financial planning.  Families are always advised to have a solid foundation through an emergency fund. However, in the long run, cash rates will trail risk assets.  Cash reserves in the US are currently estimated at record levels of around $6 Trillion.  Meaning many families in the DC area may have more cash than they have ever had before. 

This was the case in 2023 when many high yield savings options were yielding very attractive cash rates between 4%-5%. 

While past performance is not necessary indicative of future results, last year can be seen as an example of how returns can significantly vary. 

2023 Returns

US Large Cap Stocks - S&P 500 -  26%

US Diversified Intermediate Bonds – Barclays Aggregate - 5.4%

70/30 Mix – 70% US Large Cap Stocks and 30% Bonds - 19.8%

High Yield Cash - 4% - 5.5%


GuidePoint Financial Planning - Reston Financial Planning

Ryan Phillips, CFA, CFP® is the founder of GuidePoint Financial Planning. He is passionate about helping busy families plan, save, and invest for their financial future. Contact him today if you are interested in learning more about the benefits of working with a fee-only (no-commission) financial planner.

All material above is for educational purposes only and is no way a recommendation to buy or sell investment securities. You should always review investment changes with qualified professionals. The data referenced is very short-term in nature and is used for educational means.

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