Dear Dr. Don,
I have a lot of my money in certificates of deposit. At one time, they earned 15 percent annually. Now, I have some expiring, which pay 5 percent. What should I do? By the way, I’m turning 92 years old.
— Helen Hardchoices
Congratulations on turning 92! Today’s interest rate environment leaves plenty of fixed-income investors wondering what to do to earn a decent yield on savings. Stock market fans would have you invest your money in dividend-paying stocks. That works best when the market is rising. Since we don’t really know where stocks are headed, I’m not going to recommend moving money into the equities market.
Don’t forget that when you earned 15 percent on your certificates of deposit, those yields came at a price. Double-digit inflation peaked at about 13.5 percent in 1980. The purchasing power of your savings is based on the difference between the yield you earn and the inflation rate. In that scenario, it would be about 1.5 percent before taxes.
At your age, you’re likely to be as worried about protecting principal as increasing the purchasing power of your savings. According to Bankrate, the national average for a five-year CD earns an annual percentage yield of about 0.77 percent. The highest yield is listed at 2.06 percent. When the yield is below the rate of inflation, that causes a decline in purchasing power over time. A Federal Deposit Insurance Corp.-insured account should help you get your principal back.
If you’re not comfortable banking long distance, I’d suggest searching your local market for the best CD rates or high-yield savings accounts. You can do that here on Bankrate. Since interest rates have started to head higher, you could purchase a shorter-maturity CD and hope to renew at higher rates when the CD matures.
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