Dear Chuck,

I received a sizable bonus and am thinking about investing a portion of it into CDs while rates are up. We are nearing retirement and do not want to risk it in the stock market right now. Any advice? 

Cautious Investors 

Dear Cautious Investors, 

Congratulations on that bonus! I know it will be helpful to overcome some of the painful increases in the cost of living in 2023. 

Saving vs. Investing

A small but important distinction is to parse out the difference between saving and investing. Money saved is money that is secure and readily available with the exception of possible  constraints of time or tax laws. Money invested is money that is at risk of loss and possibly under the control of another fiduciary who has established terms and conditions around your investment. With that in mind, I look at your question as one related to savings if you chose to put the funds in CDs (certificate of deposits) vs. in the stock market, which I would consider a means to invest the funds. So… let’s get more practical with your question. 

To Go with CD’s or Not to Go with CD’s? That Is the Question

CDs or certificates of deposit allow you to lock into an interest rate for a certain length of time. They are considered cash “investments” designed to get a modest return on your passive deposits in exchange for leaving them in the account for set periods of time. It is important to choose them based on personal savings goals and the time needed before you have to access the money. They work best as savings accounts when the funds are not intended for emergencies or retirement. They cannot be accessed quickly without a penalty and typically do not keep up with normal inflation. They are good for specific savings goals. 

There are a variety of options available, but online banks are offering the best interest rates. They are paying good interest rates on 6, 9, and 12-month CDs. At the time of writing, I found several offerings over 5.50%. See current rates here. Online banks do not have the overhead costs of brick-and-mortar institutions and are able to pay higher rates. However, I did find comparable promotions at credit unions.

Ask Chuck Cd’s And Low Risk Investments For Cautious Investors

Consider Laddering

If you are concerned about interest rate changes for your deposits, you could ladder several to take advantage of the current APY (annual percentage yield). Then research and pray through your options before they mature. This is a strategy in which you spread cash over multiple term lengths. The benefit is having access to short-term CDs that mature on different dates. This offers you the flexibility to decide whether to reinvest at maturity. For example, if you have $20,000 to put into CDs, you could put $5,000 into a 6, 9, and 12-month CD and a 3 or 5-year CD. As the shortest term matures, you can determine if you want to roll it over or move it. See NerdWallet.com for a more thorough explanation. 

Pros (of FDIC-insured CDs)

• Offer a guaranteed rate of return
• Earn higher rates than savings accounts
• If rates are cut, the CD will continue to earn the rate you start with
• Secure place to park money
• Easy to open

Cons (of FDIC-insured CDs)

• Cannot access the money like a savings or checking account 
• Fixed rates mean you could miss out on better rates 
• Withdrawal penalties if early access is necessary

Tools: CD Calculator / CD Ladder Calculator

I recommend federally insured institutions. FDIC and NCUA protect deposits up to $250,000 should a bank collapse. Note: that cap includes all accounts held at a particular bank. 

Investing

Should you decide you prefer to invest the funds, your spouse and you would need to agree on the level of acceptable risk and the time frame that you are comfortable with. Obviously, a professional advisor can give you a variety of options that may best fit your needs. Look for a  service like the Everyday Steward of Blue Trust. They describe it like this on their website: “Designed for individuals who need one-on-one financial planning or investment management (ranging generally from $100,000 up to $1 million in assets), Blue Trust’s Everyday Steward advisors work with people who are beyond the debt stage, but who desire objective, biblically based advice.”

You are wise to diversify and consider all your options before moving the funds to CDs or any form of investment. The Bible does not give specific advice to investors outside of what King Solomon said. He said, in essence, “diversify.” This is the wise way to minimize your risk of loss. 

Give a portion to seven, or even to eight, for you know not what disaster may happen on earth. (Ecclesiastes 11:2 ESV)

The Proverbs also warn us to avoid emotional, spontaneous, and ill-informed guesses about where to place funds. 

The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty. (Proverbs 21:5 ESV)

Crown’s online Budget Coaching program matches you with one of our certified coaches to thoroughly analyze your financial situation. Your coach will work with you from the convenience of your home to help with your specific challenges. He or she can serve as a beginning point for advice while you pray for the Lord’s direction.

This article was originally published on The Christian Post on January 12, 2024