While 1 year CD rates are on the rise, they are hardly high enough to keep up with inflation. In fact, many financial advisers discourage a majority-CD investment approach for that reason.
There’s also the limitation of tying your money up in an account for a certain period of time and risking a penalty for early withdrawal. For that reason, you might wonder if parking your cash in a high-yield savings account might be the better option. You won’t earn that much less, and you’ll also have more flexibility to access your funds when you need them.
As an example, here’s what an investment might look like after one year:
As you can see in the table, CDs beat out savings, but even at the highest investment amount, you’re earning just $33 more through a 1 year CD than if you parked your cash in a savings account.
The most recent report from the Bureau of Labor statistics on the Consumer Price Index shows the “all items index” rose 2.1% over the last 12 months. So while investing in CDs probably won’t help you get ahead in the long run, they can help you at least make some money in a safe, short-term investment, and that lessens the pain of inflation. Choosing a mixture of investments based on your goals and how soon you’ll need access to your money can help you decide which investments are best.