Media Contact: Barbara Fornasiero; EAFocus Communications; barbara@eafocus.com; 248.260.8466

Wyandotte, Mich. — July 29, 2024 —As interest rates on certificates of deposit (CDs) remain strong, Carma Peters, president and CEO of Michigan Legacy Credit Union, explains how the popular investment option can be used for short- and long-term savings objectives.

“Historically, long-term CD rates earn higher yields than short-term ones, but that’s not the case currently. Many of the highest rates offered by financial institutions now are on short-term CDs of one year or less,” Peters said. “Because financial institutions are expecting rates to decline, they don’t want to create a future liability situation where interest rates go down and they are stuck paying higher rates over a longer-than-necessary period of time.”

Peters explained that CDs can be a good vehicle for reaching near-term financial goals, including a goal that is often overlooked.

“An important short-term goal for using CDs can be striving for financial stability, such as creating a three to six-month rainy-day fund to guard against financial disaster when the unexpected hits, like the loss of a job, major immediate home repairs, or the loss of a useable vehicle,” Peters said. “By investing in short term certificates, savers can earn a higher rate than putting all the funds in a savings account with compounding interest (interest earned and added to the balance).

Another advantage of short-term CDs is their liquidity. If the rates do go up, you can invest in another short-term or longer-term CD at a higher yield when the current CD matures. Or, you can use the principal and interest earned for an important immediate need – not want. For some consumers, the longer-term CDs don’t fit their financial needs; they can’t practically tie up their funds for long periods of time.

While certificates generally earn a higher interest rate than funds in a savings account, traditional savings accounts remain an important investment companion to CDs because they are ‘liquid’ – meaning immediately accessible. CDs can bring penalties when cashed in early.

“Don’t put money in a 36-month certificate of deposit, for example, if you are going to use the funds in 18-24 months,” Peters said. “Depending on the financial institution, you could put the interest earned at risk for an early redemption penalty – and potentially some of the principal as well.”

A popular strategy of investing in CDs is CD laddering. For example, by splitting funds to invest in a three-month, six-month, nine-month or 12-month certificate, if interest rates increase even slightly at maturity, the CD can be re-invested at a higher rate. That could be .10 or .20 basis (percentage) points higher.

“Short term CD investments in the current economic cycle make sense, but keep investing with the best possible yields, because investing overall is a long game not a short one,” Peters said. “When longer term yields are higher than short-term yields – invest in longer term certificates when financially possible.”

About Michigan Legacy Credit Union
Michigan Legacy Credit Union (MLCU) is a member-owned, not-for-profit financial cooperative serving members who live, work, worship, attend school, or own a business in the state of Michigan. Michigan Legacy Credit Union is committed to providing quality financial services at a competitive price, delivered professionally and efficiently while keeping member/owners and their needs first. For additional information on MLCU, visit: www.michiganlegacycu.org.

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