CD Rates Are Falling. Here’s Why I’m Not Upset About That

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The days of 5% CDs are dwindling. Read on to see why I’m not bothered by the situation. [[{“value”:”

Earlier this year, it was pretty easy to lock in a certificate of deposit (CD) that would pay you 5% or even a little more. But at this point, 5% CDs are harder to find. And they may go away completely before the end of the year, especially if the Federal Reserve continues to cut its benchmark interest rate, as it’s expected to do.

A lot of people I know are upset that CD rates are falling. But I’m not bothered one bit — here’s why.

1. CD rates are still pretty darn impressive

I remember reaching the point years ago when I was happy to lock in a 2.5% APY on a CD. So by comparison, today’s CD rates are still pretty solid, even if it’s not as feasible to lock in a 5% rate anymore.

If you shop around for a great CD rate, you may find that you’re able to find one paying 4.5% or 4.75%. And that’s not a terrible deal at all, which is one reason I’m not grumbling about the fact that CD rates are falling.

2. CDs aren’t the best investment for me anyway

A CD is a great place to put your money on a fairly short-term basis. If you’re saving for a goal that’s about a year away, it could pay to open a 12-month CD. And full disclosure — I opened a 5-year CD earlier this year because I’m saving for a goal that fits that timeframe (college).

But generally speaking, I don’t tend to turn to CDs to grow my money. Instead, I invest in the stock market.

See, over the past 50 years, the S&P 500’s average annual return has been 10%, accounting for strong years and weak ones. I’d much rather aim for a 10% return on my money than 5%. And because of that, falling CD rates aren’t such a problem for me. If anything, they only reinforce my decision to rely primarily on my stock portfolio to work toward long-term goals, like retirement.

To be clear, investing in stocks isn’t safe when you only have a short window of time to work with. If your portfolio loses value and you don’t have enough time to ride out a recovery, you risk losing money. But if you have about seven years or more between now and when you want to meet a given goal, then stock investing absolutely makes sense.

3. Lower CD rates also mean more affordable borrowing rates on a whole

The Federal Reserve’s interest rate cuts won’t just impact CDs. They’re also likely to lead to cheaper borrowing on a whole.

In the coming year, I expect everything from mortgages to personal loans to auto loans to get less expensive. And while I don’t have plans to apply for one of these loans in particular, you never know.

If my 10-year-old car starts giving me trouble, I might end up needing to finance a new one in a pinch. And it’s comforting to know that if that’s the case, I may be looking at some savings on an auto loan compared to what I would’ve paid this past year.

Falling CD rates aren’t an issue for me, and they don’t have to be a problem for you either. If you’re interested in opening a CD, know that if you act soon, you can snag a pretty great deal.

But you may realize that putting your money into stocks is a better option. And what you lose in the form of less interest on a CD, you might gain in the form of a less expensive loan you sign up to pay off for years.

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