My savings strategy is to maximize revenue while still being liquid. After all, you don’t know what costs are around the corner, so the last thing you want is to lock your money into a long-term CD that you need to pay to the bank to access it. That’s not good.
Without a doubt, the best option to achieve both is a no-penalty CD. As the name suggests, you can access cash when you need it and save money as the penalty CD rate is well above 4%.
That way, if the Fed cuts fees this year, if inflation rises, they can lock them in when they are still high and have the flexibility to find better investment opportunities.
Subscribe to Kiplinger’s personal finances
Be smarter, better informed investors.
Save up to 74%
Sign up for Kiplinger’s free e-newsletter
Remember profits and prosperity with expert advice on investments, taxes, retirements, personal finances and more – directly to email.
Profit and prosperity with the advice of the best experts – directly to your email.
So, what is the catch and is this the best savings strategy for you to adopt? Let’s dive in.
How a no-penalty CD can help
Let’s start with the good ones:
If the 4.34% condition gets a short rate and the Fed is reduced, give the investment pivot time.
The advantage is that if you push money aside for a short period of time, get more fees than inflation, and have quick access to cash, this is a great savings option. Whether you have future costs or want to get a risk-free way to diversify some of your savings, a no-penalty CD will provide you.
If you want to try it out, the below tools with Bankrate can help you quickly compare options from multiple banks.
What to consider with this CD
As the name suggests, the no-penalty CD comes with the option to withdraw some of your cash if needed during the semester. However, when it comes to access, it is not as flexible as a high-yield savings account.
Typically, after raising funds, some banks will need to store all your money in your account for at least 7 days, up to 30 days. For most savers, this is not a contract break, as this is intended to take advantage of a higher rate of return. And the longer you keep it, the more you earn.
Additionally, some banks and credit unions limit the frequency of withdrawing money. Some allow you to do it only once a month, while others allow you to take everything after your initial retention period.
Another thing to keep in mind is that some banks will automatically update their CDs once they reach maturity. With this in mind, you will be given time to research other options to set reminders on your calendar or phone a week before maturity.
If you decide to switch to a high-yield savings account in the future, this tool from Bank Rates will help you compare and find the right options.
Will the Fed cut interest rates?
The future remains ambiguous, but some people have predicted that the possibility of rate reductions in the future is increasing. The main one is Oxford economics. This states that there is a high possibility that the Fed rate will increase by up to 50 basis points in December.
But that’s not because the economy is in a strong place.
“We believe there is an increased risk of a greater initial movement. Her statement shows that the end of this year’s tail can be seen coming to save the Fed’s declining labor market,” said Nancy Vanden Herten, the leader of the US economist at Oxford Economics.
If the Fed is reduced, it will affect savers with lower rates. The good news is that if you have a penalty CD that is not locked in, it will not affect your revenue potential.
And you’ll get access to your cash quickly. That way, if inflation rises, you can spend money on investments that could go even further than rising costs.
