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Could CD Yields Hit 7% in 2024?

The interest rates you can get from deposit accounts at banks have soared over the past two years. It wasn’t too long ago where a 2% APY on a “high-yield” savings account or CD was considered a great find. But as of this writing, it’s not difficult to find CDs with 5% or greater yields, thanks to the recent inflationary environment that has led to rapid increases in benchmark interest rates.This raises the question — how high could CD rates go? Could we see 7% CD yields before the end of 2024? While nobody has a crystal ball that can predict the future direction of interest rates, here’s what we know and what you can expect going forward.Where CD yields stand todayBefore we get into a discussion of where CD interest rates could go, here’s a bit about where things stand right now. As you might expect, the best CD yields can be found at online banks (for the most part), and here’s what you can get as of Dec. 11, 2023:Our top-ranked 1-year CDs have yields ranging from 4.25% to 5.61%, with most in the low-5% range.Our top 18-month CDs have yields as high as 5.6%.2-year CDs with yields as high as 5.5% can be found.Most of our top online banks have 5-year CDs with yields in the 4% ballpark.Be sure to check our best CD rates page for the latest offers from our top-ranked banks.Using the high end of the 1-year and 18-month ranges as a guideline, this means that CD yields would need to increase by about 140 basis points (1.4%) from current levels to produce 7% CD yields.It’s worth noting that historically, the longer your CD’s maturity length, the higher the APY you could expect to get. But the opposite is generally true right now. I don’t want to turn this discussion into an economics lesson, but the general idea is that when short-term CDs pay more than longer-term ones, it indicates that interest rates are expected to decline going forward (you may have heard the term “inverted yield curve” on the financial news, and this is a form of one).Interest rate projections for 2024With that last point in mind, let’s take a look at what experts think interest rates are going to do in 2024.The short version is that most experts expect rates to fall. But there is little agreement when it comes to the magnitude of a potential decline.The latest version of the Federal Reserve’s economic projections (by the people who actually make policy decisions) calls for a single 0.25% rate cut, compared with current levels, in 2024. However, it’s worth noting that this is from the September Fed meeting, and the inflation data since then has generally been better than expected.On the other hand, according to the CME FedWatch Tool, the futures markets are pricing in a median of five quarter-point rate cuts by the end of next year (a total of 1.25%). Some experts think even more cuts will be needed.However, one common theme among all of the predictions I could find from notable experts is that nobody thinks the benchmark federal funds rate will be higher at the end of 2024 than it is today.The bottom lineOne important thing to know is that while CD yields tend to move in the same direction as benchmark interest rates, they aren’t usually directly tied to them. In other words, if the Federal Reserve cuts the federal funds rate by one percentage point in 2024, there’s no guarantee that CD yields will decline by the same amount — or at all.Having said that, virtually every expert is predicting that interest rates will go down in 2024, not up. But that doesn’t mean the unexpected won’t happen. At the start of 2022, when mortgage rates were around 3%, few people would have predicted that they’d more than double over the course of the year. If inflation unexpectedly spikes, for example, it could cause policymakers to raise rates, which would likely move CD yields higher.However, given the information we have now, it is looking more likely that CD yields could fall in 2024, so it could be a smart idea to take advantage of high-yield CDs in the near term. But again, there’s no guarantee rates won’t rise.

How Much of Your Retirement Savings Should You Keep in Cash?

By: Maurie Backman |
Updated
Dec. 19, 2023 – First published on Dec. 19, 2023

To live comfortably as a senior, you’ll need savings. And it’s a good idea to house the bulk of your savings in an IRA or 401(k) for the tax benefits involved. Both of these accounts allow you to invest your money so it ideally grows into a much larger sum over time.But should you invest all of the money you’re earmarking for retirement? Or should some of it sit in a savings account so you have some cash on hand?Your strategy should hinge on your ageWhen retirement is many decades away, it’s smart to invest your money — pretty much all of it. Keeping it in cash might earn you around 2% a year or so in interest (keeping in mind that today’s bank account APYs of 4% and higher really aren’t the norm). But investing it might earn you 10% a year, since that’s the stock market’s average return over the past 50 years. So you want to capitalize on that growth opportunity.However, as you get closer to retirement, it’s a good idea to move some of your long-term savings into cash instead of keeping it invested. The reason? Once you retire, you’re likely going to be withdrawing from your nest egg regularly. But what if the stock market suddenly tanks?In that case, you risk taking permanent losses by having to sell investments for money at the wrong time. The same thing could happen to the bond market, too. If you own a lot of bonds and have to sell them at a loss, you’re in the same unfavorable position.That’s why it’s important to keep some of your retirement savings in cash — but only once you’re nearing retirement. You probably don’t want to keep a portion of your nest egg in cash in your 30s or 40s. But if you’re 62 years old and expect to retire at 65, that’s a good age to start turning some of your assets into cash.The right amount of cash to have on handDuring your working years, you should aim to have enough cash in an emergency fund to cover three months’ worth of living costs at a minimum. For retirement, you’ll really want more like one to two years’ worth.The reason? Any market downturn that impacts your portfolio could be lengthy. You want to give yourself the opportunity to ride out a downturn while still being able to cover your bills.If you keep one to two years’ worth of expenses in cash, you’ll be able to avoid selling assets for that long. In fact, if you’re the more conservative type when it comes to risk, you could even opt to keep three years’ worth of expenses in cash. You’ll lose out on some growth by doing that, but it might give you more peace of mind.With that said, different people have access to different income streams in retirement. If you own a rental property that generates steady income, for example, you may be able to get away with keeping a little less cash on hand.But for the typical person, one to two years’ worth of cash in the bank is generally best. Just don’t make the mistake of moving that money over too early in life.

Does Your Income Make You Upper Class, Middle Class, or Lower Class?

By: Christy Bieber |
Updated
Sept. 5, 2023 – First published on Sept. 5, 2023

Incomes vary widely across the United States, with some people making many times the amount that others earn. If you’ve ever wondered how your personal finances stack up, and what “class” your income officially puts you in, here’s what you need to know.What income do you need to be upper, middle, or lower class?Based on 2021 data, here’s what you would need to earn in order to be in each class:Lower class: This is defined as the bottom 20% of earners. Those in the lower class have an income at or below $28,007.Lower middle class: This is defined as individuals in the 20th to 40th percentile of household income. Earnings among this group are between $28,008 and $55,000Middle class: The middle class is officially those whose earnings put them in the 40th to 60th percentile of household income. The income range is $55,001 to $89,744.Upper middle class: Anyone with earnings in the 60th to 80th percentile would be considered upper middle class. Those in the upper middle class have incomes between $89,745 and $149,131.Upper class: Finally, the upper class is the top 20% of earners and they have incomes of $149,132 or higher.Take a look at these numbers and see where you fall based on your own earnings. And remember, this is a snapshot in time — your earnings can change throughout your life, and so can your class designation.Will your success be determined by your income and class?It’s probably not a surprise that those in the upper classes or in the upper middle class do have a higher net worth than those in the lower class or the lower middle class. But the disparity is greater than you might think. While the median net worth of those with incomes of $149,132 or higher is $805,400, the median net worth of those in the lower class is just $12,000.Your income impacts how easy it is for you to build wealth. If you make more money, it is easier to save it and invest it in a brokerage account where it can work for you. If you make less money, then you may struggle even to cover the necessities out of your checking account, much less to buy valuable assets that help you grow richer over time.But that doesn’t mean people who don’t make a lot of money can’t be a financial success. A lot depends on what you do with the money you actually have, including how much you spend and how much you save.There are plenty of people who make over $100,000 a year who live paycheck to paycheck, and plenty of people with incomes that put them squarely in the lower or lower middle class who have diligently saved and grown quite wealthy over many years.Here’s how you can improve your standingDon’t be discouraged if you aren’t in the class you hope to be. For one thing, you have opportunities to increase your income by taking the following steps:Learning new job skills: You could obtain a certification, take part in a management training program at work, or take some classes to develop skills that may help you get promoted (such as computer training courses or public speaking classes), depending on your industry.Take on a side hustle: The average side hustle brings in $483 per month, which is a good amount of extra money that could make a meaningful difference in your income.Work some extra hours: If your company allows you to work overtime, take advantage of it, as many people are paid time and a half for overtime hours.Negotiate your salary: According to Pew Research, when workers negotiated for higher pay, 28% said they received the extra money they asked for and 38% indicated they were given more than originally offered but less than their ask. Whether you are getting a new job or staying at your current job but feel you’re underpaid, it doesn’t hurt to make a request for more money — especially if you can find salary data to back up the fact that others in your industry are paid more.And even if your earnings never put you in the top 20% of earners, you can still have a rich life and end up with the financial security you deserve — especially if you prioritize saving as much as you can for as long as you can.

3 Reasons I Don’t Shop at Dollar Stores

By: Ashley Maready |
Updated
Nov. 27, 2023 – First published on Nov. 27, 2023

Does it feel as if everything is so much more expensive than it used to be? Well, you’re not imagining it. We’re still coping with higher inflation than usual (thankfully lower than it was during summer 2022, at least). As of the last Consumer Price Index Summary report, inflation was holding steady at 3.2% between October 2022 and October 2023. So if you’re hoping to spend less money on your everyday purchases (and who among us isn’t?), shopping at dollar stores seems like the natural choice.Dollar stores are everywhere — Statista reports that there were over 37,000 of them in the U.S. last year. Plus, shopping at dollar stores comes with some perks — for example, they can be a great place to buy low-cost gift wrap and greeting cards (why spend more for something that will be thrown out in short order?).If dollar store shopping works well for you and your personal finances, I absolutely get it, and think you should keep saving money in any way you can. But my own issues with dollar stores supersede my desire to save money. Here’s why I avoid dollar stores.1. I have concerns about product safetyChances are good that you’ve been impacted by a product recall at least once in your life — manufacturers and sellers implement these to get potentially unsafe products out of the hands of consumers. Earlier this year, Family Dollar undertook a recall of almost 300 drugs and other medical products that had been stored improperly and then sold at stores in almost two dozen states.The fact that so many different products, from toothpastes to allergy medicines to painkillers, were affected is extremely concerning and points to bigger issues with how dollar stores handle their supply lines and distribution. (Some of this relates to staffing problems; see below for more on that.) Dollar stores certainly aren’t the only retailers who occasionally have to recall products for safety issues, but it’s definitely a reason I would never buy medication or similar items from a dollar store.2. I don’t like the way they operateDollar stores have a nasty habit of moving into rural areas of our country and undercutting local small businesses with their seemingly lower prices on essential items. In some places, they can even push out grocery stores, making dollar stores the only place to buy grocery items. And since the number and types of items sold are limited (particularly the selection of fresh produce, assuming it’s available at all) at dollar stores, this can be extremely limiting for consumers.Going beyond the impact on local businesses and the food supply, dollar stores have also gotten in trouble with the federal government for not providing a safe working environment for staff members. As recently covered by Last Week Tonight with John Oliver (as well as other outlets), dollar stores can be severely understaffed, terribly disorganized, and even beset by rats and violent criminals. I’ve lived and worked in small rural towns, and the residents there deserve better. In some places, locals are fighting back — NPR reported that 50 communities in the U.S. have put limits on new dollar stores opening in their area.3. I’d rather spend more upfront for items that lastWhile paying less for an item you buy is a more straightforward way to find savings, dollar stores don’t always sell the highest quality of a given item. I’m fortunate that I am able to put a bigger charge on my credit card for a purchase and in exchange, have it last for longer. Batteries, tools, and toys are all examples of items best avoided from dollar stores because they just aren’t as well made or long lasting as items you might pay more for from brands you’ve heard of.I can buy an eight pack of AAA batteries from Dollar Tree for $1.25. But if those batteries end up leaking, or even just not lasting very long, I’ll use them up more quickly than I would if I sprung for Duracells from Amazon. There are other ways for me to save on higher-quality items, such as waiting for holiday sales or buying in bulk, rather than buying them at dollar stores.Personal finances are just that — personal. So just because dollar store shopping isn’t a fit for me doesn’t mean it isn’t for you. I do recommend taking the time to compare prices using product sizes, however, as this is one way you might be fooled into thinking dollar store prices are lower. That way, you’ll be able to tell in real numbers whether you’re saving money.

My Brother Won a Car on The Price Is Right. Here’s What It Cost Him

By: Maurie Backman |
Updated
Dec. 7, 2023 – First published on Dec. 6, 2023

When my brother got tickets to be in the audience of The Price Is Right, he figured it would simply be an entertaining way to spend a day off. He didn’t imagine his name would actually be called during the show’s opening round.But lo and behold, my brother was one of the first four contestants asked to come on down and participate in the iconic show that has you guessing at prices of various consumer goods. And as luck would have it, my brother was able to out-bid his competitors and move on for a chance at a new car — a car he won through savvy guessing, but also, a nice amount of luck.My brother was ecstatic to have won such an awesome and valuable prize. But that prize wound up being a bit of a mixed bag.Taking the money and runningMy brother won a Hyundai Elantra with an estimated value of $25,415. He was happy to have won the car, but there was a problem — he already had a vehicle and didn’t need a second one. And he certainly didn’t want to have to bear the cost of auto insurance for a vehicle to largely just sit in his driveway.Thankfully, my brother was able to work something out with the dealership. Instead of keeping the Elantra, he was able to use the roughly $25,000 credit he got to buy a used car from them and then sell it back for $21,000, which he took as cash. This route was worth it for him because sales tax and registration for a new Elantra would’ve been about $4,000. And now, my brother has a pile of cash he can add to his savings account instead of a car he doesn’t actually need.Gearing up for a giant tax billMy brother won two prizes on The Price Is Right — a grill package worth about $1,400 and the Hyundai Elantra. All told, it’s more than $26,000 in winnings.But now, my brother is going to be looking at a pretty hefty tax bill on his prizes. And it doesn’t matter that he took cash for the car. He’s looking at paying that tax either way.The exact amount will hinge on his total tax situation. What’ll probably happen is that my brother will receive a tax form from the game show summarizing the value of his winnings, and he’ll need to work with his accountant to figure out what it will cost him.As a very basic example, let’s say you win $20,000 on a game show and fall into the 24% tax bracket based on your income. You might, in that case, end up having to pay as much as $4,800 on your winnings. If that $20,000 is a cash prize, you could simply reserve some of it for your tax bill. But what if you win a $20,000 vacation package, or $20,000 in furniture? It’s not like you can send the IRS a dining room chair or a loveseat and call things even.So be very careful when you’re looking at taking home any sort of game show prize. You may even want to meet with an accountant before applying to be on a game show to get some advice.The good news is that my brother stands to gain something financially either way. But imagine you were to receive a $26,000 bonus from work. That’s a great thing. But you’ll likely end up losing a large chunk of that $26,000 when you account for the portion you owe the IRS.All told, my brother is grateful for his experience and now has a really fun story to tell. But if you’re planning to audition for a game show in the hopes of walking away with a huge amount of cash or a set of prizes, do know that winnings like that are considered taxable income. And it might take the input of a very seasoned accountant to help you reconcile your tax bill after coming away with that sort of haul.