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Savings account or CDs for my 90 grand?

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Dear Dr. Don,
I have about $90,000 in an online savings account with one of the highest interest rates. (It’s 0.85 percent — big deal.) I am wondering if I should leave it there or move it to certificates of deposit. I am 71 years old and am still employed full time.

— Diane Depositor

Dear Diane,
Don’t view these savings in isolation. Take a look at how they fit into your overall financial picture. What other investments do you have? What are your sources of income for when you retire?

Deciding where to hold savings means finding the right balance among safety, convenience, liquidity and yield.

One reason to have money in a (relatively) high-yield savings account is for liquidity, meaning you can get at the money whenever you need it. You want to keep money for emergencies and any other short-term cash requirements in liquid savings. It’s only if you’re willing to take the risk of paying the early withdrawal penalty on CDs that you should invest your emergency fund in CDs.

The downside of the Federal Reserve keeping its short-term interest rates so low for so long is that it’s severely impacting the purchasing power of your savings. When you measure the yield on your savings after considering taxes and inflation, you’re losing buying power, even though you’ve protected the principal balance.

Odds are you don’t need $90,000 sitting in a high-yield savings account. Moving some of that money into CDs can give you a pickup in yield. I’d be cautious in locking up too much money in a longer-maturity CD just as longer-term interest rates have started to inch higher.

You could build a laddered CD portfolio where you spread the money across maturities. If the shorter rungs on the ladder don’t have a yield much higher than the high-yield savings account, then keep that money in the savings account. Bankrate can help you design and build that laddered CD portfolio.

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