Your worst savings strategy? Doing nothing

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Dear Dr. Don,
I am an 84-year-old widow. Almost all of my assets are in bank or credit union certificates of deposit. When each one matures and I renew it, I find that I can get very little in return. Is there any other way that I can get more return and still protect my assets?
— Wilma Wealth

Dear Wilma,
For safety of principal, it’s hard to beat insured CD deposits. On the other hand, it’s virtually impossible to get much return on a CD in today’s low interest rate environment.

The table below shows annual percentage yields, or APYs, using Bankrate’s highest national rates in early November for CDs, money market accounts, or MMAs, and high-yield savings accounts. As you can see, it’s not pretty out there for investors in insured bank accounts.

Yields on investments
Investment APY
MMA/high yield savings 1 percent
3-month CD 0.60 percent
6-month CD 0.86 percent
12-month CD 1.15 percent
2-year CD 1.3 percent
3-year CD 1.65 percent
5-year CD 2.05 percent

If you want to stay in insured bank and credit union deposits, you have three potential strategies to improve return. You can extend your maturities when a CD matures. You can construct a bond ladder as CDs mature, filling in the rungs of the maturities available out to your longest investment horizon. Or you can use a “barbell strategy” in which you keep part or your money in a money market account or high-yield savings account and the rest in a long-term CD.

Don’t cash in your current CDs to initiate these strategies. Just manage your CD portfolio as the current deposits mature. One of the worst things people can do in CD investing is nothing. That is, they let the bank renew the maturing CD into another CD of a same term. Don’t be that depositor.

Think through what you want to accomplish with this money. Why do you want the improved return? Are you spending the money or looking to build up your balances? If you need income, it’s possible that an immediate fixed annuity with some guarantees placed on the payment term could provide higher yields and greater income.

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