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How to counter low CD rates

By Sheyna Steiner · Bankrate.com
Thursday, August 23, 2012
Posted: 6 am ET

Certificates of deposit, or CDs, can be used for a variety of purposes. Unlike stocks or other dicey asset classes, CDs typically are decent vehicles for short- or long-term savings. In today's interest-rate environment, they're not ideal for the long-term, but they are better than hiding money in a hole in the backyard.

With CD rates as low as they are now, savers who exclusively use CDs for their long-term savings will need to save more or save longer to mitigate the impact of low rates.

I recently wrote about a study done at the Center for Retirement Research at Boston College, which found that when it comes to getting to retirement, asset allocation is not the most important lever. The most important variables in getting to retirement are the amount you save and the age at which you retire.

From the paper, How important is asset allocation to financial security in retirement?, here's some advice:

Even ignoring risk, the required saving differentials are less than those associated with ages for starting to save and the age of retirement. In fact, an individual can offset the impact of a 2 percent return instead of a 6 percent return by retiring at 67 instead of 62.

Of course, asset allocation and your rate of return do play a role. But there's a lot that individuals can't control. What you can control is the amount you save and for how long.

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