As investors’ appetite for risk continues to be tested by the stock market and crypto currency, we shine the spotlight on old school Certificates of Deposit. Beth Pinsker shares how to buy them, which ones to buy and why CD's are having a moment for the first time in decades.
Money Tips
1. Think about your whole financial picture
2. Your timeframe matters most
3. Money you need in the short-term is best kept low-risk investments.
4. Ask for help when you need it
Links to things mentioned in the episode!
Follow Beth!
Twitter - @bethpinsker
LinkedIn - @bpinsker
Website - https://www.marketwatch.com/author/beth-pinsker
Follow Bobbi!
Instagram - @bobbirebell1
Twitter- @bobbirebell
LinkedIn- Bobbi Rebell
TikTok - @bobbirebell
Website- http://www.bobbirebell.com
Did you enjoy the show? We would love your support!
Leave a review on Apple Podcasts or wherever you listen to podcasts. We love reading what our listeners think of the show!
Subscribe to the podcast, so you never miss an episode.
Share the podcast with your family, friends, and co-workers.
Tag me on Instagram @bobbirebell1 and you’ll automatically be entered to win books by our favorite guests and merch from our Grownup Gear shop.
Full Transcript:
Bobbi Rebell:
Hey, grown up friends. There is something I don't talk about publicly that I have decided to start sharing. Even though it can be a bit embarrassing, I get digital overload and it stresses me out for good reason because when you have so much junk on your computer because you're not as organized as you should be because you get caught up in all the things that you have to do, if you don't deal with it, all that stuff on your computer starts to really slow things down and can become a total drag on your productivity. For me, there is nothing worse than finally motivating to get stuff done, only to be derailed by a sluggish computer that is just not cooperating. A little while ago I decided I was going to stop just hoping that things would get better and I was going to deal with it.
I downloaded something called CleanMyMac. It's from a company called MacPaw. I was skeptical but I took a deep breath and I tried it. Long story short, it totally worked. I loved how I could see it work through my files with clear and easy to understand graphics. I could see what was messing things up. And CleanMyMac would ask me for my okay before deleting files so that something I did need to keep didn't go bye-bye. That was one of my biggest fears. I recently reached out to the company and they are offering 10% off to my Financial Grownup listeners who want to also get CleanMyMac. To get that 10% of CleanMyMac, you do need to go to my link. It is bobbirebell.com/cleanmymac, B-O-B-B-I R-E-B-E-L-L dot C-O-M forward slash CleanMyMac, and that is all one word. I promise you, you'll be so happy. I want you guys to be in touch with me. Let me know how it goes. You deserve to lower the stress of data overload. Trust me. So worth it.
Beth Pinsker:
It is definitely a shopping opportunity. You definitely want to treat it like you would a high yield savings account and just go out there and seek the best rate.
Bobbi Rebell:
You're listening to Money Tips for Financial Grownups with me, Certified Financial Planner, Bobbi Rebell, author of Launching Financial Grownups, because you know what? Grown up life is really hard, but together we got this.
Are you wearing any retro fashion? Maybe you're reaching to the back of your closet, pulling out something that you forgot was even an option but now looks interesting enough to try on. That's what's happening with CDs, which is short for certificates of deposit. I personally have absolutely ignored them for as long as I can remember and my only real awareness in my daily life of CDs came from those signs that you see when you walk by physical bank branches and they would advertise rates that were frankly not all that appealing. Well, the laughing has stopped because the rates have gone up right along with inflation, but in a good way. And unlike I bonds that we discussed a few weeks ago, there is not one rate for all and not one term for all. There are a lot of choices for all of us to make if this is something that we may be interested in adding to our investment portfolios.
So I have enlisted the help of my former work colleague, Beth Pinsker, to give us the low down. Now, Beth and I worked together at Reuters where she wrote a personal finance column and she was also the editor of many of my columns. Like me, she also became a certified financial planner. Beth is now at MarketWatch where she writes about investing. I saw her recently and being the nerds that we are, the conversation naturally turned to how exciting CDs were as one does. Beth translates all when it comes to CDs. You guys are in for a treat. Here is Beth Pinsker.
Beth Pinsker, you are a financial grownup. Welcome to the podcast.
Beth Pinsker:
Hello.
Bobbi Rebell:
I'm happy to have you here. We ran into each other recently and reconnected. We are former colleagues and you have continued to soar in the world of journalism. You are now the investing columnist at MarketWatch. Tell us a little bit about that job and your expertise, because you're also a CFP. We both took the CFP exam and we both mutually cheered each other on and thank goodness we passed because that exam is one we don't want to take again.
Beth Pinsker:
No, never. I'm done with tests I think. So I'm looking in my column and investing holistically as an element of financial planning. So it looks at everything that you need to do from what kind of accounts you have open to what you put in them to how you take it out of them, that whole life cycle of your money.
Bobbi Rebell:
I love that because we previously used to just think, okay, investing means throw money into the stock market, pick an ETF and you're done, set it and forget it. But it's becoming a little more complicated now because the market's had such an extreme pullback. We're talking in the fall of 2022 and people are starting to think about things like I bonds, which we covered in a recent podcast episode, and things that we used to roll our eyes at and dismiss as being not all that, things like CDs, and that's what I asked you to come on and talk about. Tell us, first of all, just explain to people because this may be a foreign concept to some people listening to the podcast because it has not been something even really for many people worth looking at. What's a CD? How do they work? What do we need to know? The basics.
Beth Pinsker:
Yeah. Advisors tell me that anybody under 50 has no idea what a CD is and has never touched one and doesn't have any idea what they are. A CD is a certificate of deposit, it's a banking product. So it's fully insured under the FDIC and you are basically buying a certificate that is loaning money to the bank and they pay you interest for that and that interest is higher as an incentive than a regular bank account. You lock in for a certain period of time, three months, six months, nine months, 12 months, five years. You can even get CDs that are longer than that and the longer the length, the higher the rate usually.
What happens with that kind of structure is that a lot of people will put longer term money in there in order to get the higher interest rate or they will create what are called ladders where they have different maturities that come due and then they create a rung structure. So you have a three month, a six month, and nine month, and when the three month comes due, you roll it into a six month and when the six month comes due, you roll it into another six months or a three month. There are different scenarios for what you need to get out of your money, but basically it's a loan that you are giving to the bank and so they give you money in return.
Bobbi Rebell:
Is this something that people would buy in a normal brokerage account like if they use certain apps or if they use certain discount trading platforms? Is it as simple as picking it out just like you would a stock or a mutual fund or an ETF?
Beth Pinsker:
It's actually easier, which is why I think that when you talk about I bonds, which you have to go to a separate account to buy, and treasuries, which you have to go to either treasurydirect.gov or you can get them through your brokerage account. There are all sorts of maturities and different distribution dates and all sorts of numbers after the title of the treasury bond, they're hard for the regular person. A CD is like a click in your bank account and you have a CD. It's like the regular person's version one step beyond a high yield savings account. I think that the hierarchy is you have your checking account, you have your savings account. If you're really interested in making more money, you have a high yield savings account, which might be at a separate bank like an online savings bank.
If you want more money than that, then you go to a CD and then if you're willing to go beyond those steps, then you think about I bonds in a separate account or treasuries in a separate account. There is something called a brokered CD, which would be available through your brokerage account and those are typically at a higher rate than even the CDs that are offered directly by a bank. Basically, they're like bulk rate brokerage discounts so that Fidelity or Vanguard or whatever your brokerage account is, they would make a deal with the bank that's offering the CD and you would get a slightly better rate to buy it through as the brokerage account as an incentive to do it there and then it would live in your brokerage account.
Bobbi Rebell:
So let me ask you this, for example, you compared it to treasuries. With the treasury, which is borrowing from the government, the rate is set. So with I bonds, every six months it's resetting. We know it's been 9.62, we know it's going to reset to a lower number, but it is what it is. With CDs, different banks could offer different rates. I mean we walk by, if you walk by a bank, you see them often advertising the CD rates. So is this something where you may bank at one place but you may want to shop around and buy a CD at a different place? And if so, how do you shop around?
Beth Pinsker:
So you can find the latest rates if you Google and search around a little bit, it is definitely a shopping opportunity. You definitely want to treat it like you would a high yield savings account and just go out there and seek the best rate. You may get preferential rates from a bank you already have a relationship with, so that's one place to start, but then you can start looking around. And because they're all FDIC insured, you don't have to worry about the safety of a brand name that you might not have heard about or a bank that's only online or a bank that's really far from your home that you can't go visit in person. As long as it says FDIC insured on there, you should be pretty good. And because it's a competitive environment, you might find a really good rate somewhere that's seeking out new customers and you can get a good deal.
Bobbi Rebell:
You sent me four tips for our financial grownups, so I just want to go through them as well. The first tip when buying CDs is to think about your whole financial picture.
Beth Pinsker:
Yes. So you don't want to put money in a CD that you're going to need right away. If you have an emergency fund, people are starting to think about their emergency fund in tiers. You need the money that you need right away to have access to say for instance, a check doesn't come in that when you're expecting it or you blow a tire and you need a little bit of extra cash, you need money you can touch today and you want that in a savings account. You want that earning interest but somewhere where you can get at it, but you might have a lot saved in your emergency fund as you should like six months worth and you wouldn't need that money for six months.
So you can look a little bit further out for the kind of opportunities to earn more on it. And so you can get a six month CD but you lock it up for those six months. There are some CDs you can get where you can get no surrender charges, where they're going to charge you if you turn it in early, but those are going to cost you a little bit on the rate. So they'll take a little bit off for that convenience fee. So that's why you have to look at how much do I need right now? How much do I need in a little while? How much do I need in a longer term timeframe? And for that longer term money, you have other options right now. CDs are one of them.
Bobbi Rebell:
Your second tip for financial grownups is exactly what you just said. Your timeframe matters most. So follow up on that, you've talked about the timeframe, but what are the other options? You said there's other options with different timeframes. What else should people be considering?
Beth Pinsker:
When I was first a grown up, I thought you needed a certain amount of money to invest. That used to be true. There used to be minimums and trading fees and it really didn't pay to invest money because you were going to pay so much in fees in order to buy the stock or mutual fund that you wanted to buy and you needed $5,000 or $10,000 to get anybody's attention to do it for you. And now with all these trading platforms, there's no transaction fee, there's no minimums and you can get started right away. So your money is really all about what you need it for and what's the best way to store it and grow it while you're waiting to spend it. You have investing options, you have bond options, you have banking product options, you have a lot of options these days.
Bobbi Rebell:
Right. Because your third tip was money you need in the short term is best kept in low risk investments, CDs are one. And I think a key thing that has come up a few times in this interview is FDIC insured. And that's something that I think has become more of a conversation topic in the wake of so many troubles in the crypto space because that's something I don't know people were necessarily aware of that there is no FDIC insurance when it comes to crypto products and other new kinds of investments that maybe people are thinking about and talking about. It's not that simple. I mean FDIC insured, can you just explain what protection that offers?
Beth Pinsker:
Sure. FDIC is an insurance product offered by the government to banks on $250,000 worth of deposits in a single account type. So if I have $250,000 and I have it in the bank and the bank goes kaput, the government will make sure I have my $250,000. I can't lose that money. It won't necessarily protect me from losses in the stock market, for instance, like there's a separate insurance for the failure of brokerage houses, but that also only covers the amount of money you have saved there. It doesn't cover investment losses. And I think what a lot of people are learning this year too is that the stock market can indeed go down and I think a lot of people who might have gotten started investing in the last five years or so might not have really fully realized that that things do go down and that if you put a thousand dollars in the stock market and today it's 800, nobody's going to make up that difference for you. But if you put your money in a bank account and you have a thousand dollars, you're going to have a thousand dollars.
Bobbi Rebell:
Very well said. And the fourth one is probably the most important for financial grownups and that is to ask for help when you need it.
Beth Pinsker:
Yeah, a lot of people have trouble with that. A lot of people don't want to tell their exact numbers to anybody, and it's hard, even a teenager talking to their parents or a young adult talking to their parents doesn't want to talk in exact numbers. And it's hard to give advice for finances without exact numbers because the advice you give to somebody who has $10,000 to invest is a lot different than somebody who has a hundred thousand dollars to invest.
Bobbi Rebell:
I think that you've made a great point throughout this that not only is everyone's needs goals and resources different, but your timelines are different. And that really is so much of this discussion that the nice thing about CDs is you can choose different timelines with the CDs and you'll get different returns, but at least you can customize it to your needs and strategize with it.
Beth Pinsker:
Yes. Another important thing to take note of that is that the Federal Reserve's next meeting is November 2nd, and then after that, I think it's December 14th, and they might raise rates again. And so you might want to be cautious about what you lock into right this second. We're very close to November 2nd. If rates go up again with the Federal Reserve, they're tied to the rates that banks offer. And so CD rates and high yield savings account rates and treasury bill rates might all shift upwards with that. And if you're locked into a two year CD right now, you might not necessarily capture what's going to happen in a month. But then again, given all the forecast about the economy, rates might eventually come down. So we're in an in between phase where nobody knows exactly what's going to happen with rates. And so you just want to take a look at what your needs are and what the amount of money you're dealing with and the timeframe you're dealing with and see what the best course of action is for you.
Bobbi Rebell:
Very well said. Beth, tell us where people can make sure to get all of your pieces for MarketWatch and be in touch with you if they want to learn more about you.
Beth Pinsker:
Well, there's marketwatch.com and then there's bethpinsker.com, so either one.
Bobbi Rebell:
Okay, great. And your socials?
Beth Pinsker:
I'm @bethpinsker on Twitter. And I'm Beth Pinsker on LinkedIn, and my dog has an Instagram account.
Bobbi Rebell:
Oh, well what's your dog's Instagram account?
Beth Pinsker:
It's [inaudible 00:16:28].
Bobbi Rebell:
We'll follow that too. Thanks, Beth.
Beth Pinsker:
Thank you.
Bobbi Rebell:
Hey, grown up friends. A big thank you to so many of you that have already bought my new book, Launching Financial Grownups: Live Your Richest Life by Helping Your (Almost) Adult Kids Become Everyday Money Smart. This book was not easy to rate because I had to get honest with myself about what was working with my teen and young adult kids and what was not working, and I also had to be prepared to share it with all of you.
So first of all, thank you for your support and your wonderful responses to it. There's definitely some things in there that you may not have been expecting to hear. By the way, I got a lot of help from my money expert friends and also financial therapists and parenting experts. I am really happy with how launching Financial Grownups came out, even though it really was hard to be, like I said, that honest and it was a lot of work, but I really love doing it and I'm really happy with how it came out. On that note, if you have not already, please pick up a copy of Launching Financial Grownups today. After you do, please share it on social media. Please leave a review on Amazon. Those reviews are super important because the algorithm picks up on them and that can make the book a lot more visible to more people. So I truly appreciate it and I really also appreciate all of your support.
So many choices. I highly encourage everyone to use the free resources available to you as a listener of The Money Tips for Financial Grownups podcast, including the full transcript that we provide so you guys don't even have to take notes. Just go to my website, bobbirebell.com, and look under the podcast tab and then click on the episode and it is all there for you. So be in touch with what topics you want to hear about. Just DM me on Instagram @bobbirebell1, that's the number one. Or email me at hello@financialgrownup.com. I love sharing this information with all of you for free. I know your time is precious and I appreciate your support. If you do have the time, please leave a review of this podcast wherever you listen to it and help me get the word out by taking a screenshot on your phone and sharing it on social media.
Tag me so I can thank you and let you know how much it means to me. And of course, you could just tell a friend about it too, right? Let's stay in touch. I share relevant articles and resources in my newsletter. It only comes out every other week, so I promise I won't barrage you with mail, but I really appreciate you being part of the community. You can sign up on my website, bobbirebell.com. Super easy. Biggest thanks to MarketWatch investing columnist and certified financial planner, Beth Pinsker, for helping all of us be financial grownups.
Money Tips for Financial Grownups is a production of BRK Media LLC, editing and production by Steve Stewart, guest coordination, content creation, social media support, and show notes by Ashley Wall. You can find the podcast show notes, which include links to resources mentioned in the show, as well as show transcripts by going to my website, bobbirebell.com. You can also find an incredible library of hundreds of previous episodes to help you on your journey as a financial grownup. The podcast and tons of complimentary resources associated with the podcast is brought to you for free, but I need to have your support in return. Here's how you can do that. First, connect with me on social media @bobbirebell1 on Instagram and @bobbirebell on both Twitter and on Clubhouse, where you can join my Money Tips for Grownups club. Second, share this podcast on social media and tag me so I can thank you.
You can also leave a review on Apple Podcast. Reading each one means the world to me. You know what? It really motivates others to subscribe. You can also support our merch shop grownupgear.com by picking up fun gifts for your grownup friends and treating yourself as well. And most of all, help your friends on their journey to being financial grownups by encouraging them to subscribe to the podcast. Together we got this. Thank you for your time and for the kind words so many of you send my way. See you next time and thank you for supporting Money Tips for Financial Grownups.