Are CDs a Good Idea During a Recession? 

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Americans have been holding their breath at the prospect of a looming recession for months. Many economic experts disagree about whether a recession is inevitable or unlikely to happen. Still, it’s wise to prepare yourself for the possibility. 

Some basic ways to get your finances ready for a recession include building an emergency fund, updating your budget and cutting unnecessary spending. A recession isn’t the time to stop putting away money for the future. However, an unsteady economy might be the right time to talk to a trusted financial advisor about whether your current saving and investing strategy still makes sense. 

A certificate of deposit (CD) could be a good place to store some cash during a recession, depending on your situation. But it’s important to be smart about your CD savings strategy. Here are some tips that could help you, along with a few mistakes to avoid.  

Why Saving in CDs Could Make Sense During a Recession

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When you’re saving for long-term goals, like retirement, many financial experts recommend building a diversified portfolio starting with investment accounts that offer tax advantages like IRAs or 401(k)s. A certificate of deposit, on the other hand, can be a good fit for a variety of short-term and medium-term savings goals.

Some of the benefits CDs offer can be extra reassuring during a recession, such as: 

• Fixed interest rates: In exchange for agreeing to leave your cash in a CD for a set period of time (the CD’s term), most banks offer fixed interest rates that remain the same until your CD reaches maturity. 
• Nearly guaranteed returns: Unlike investing in an unpredictable stock market, CDs returns are virtually guaranteed. This makes it easy to calculate the amount of interest you’ll earn on your cash savings over the life of your CD term. 
• Higher returns: Compared to other deposit accounts like savings accounts, checking accounts and even money market accounts, CDs often feature higher annual percentage yields (APYs) that can help you earn more interest on your savings. 
• Safety: During times of economic uncertainty, one of the biggest perks a CD may have to offer is FDIC insurance. If you open a CD with a bank that’s a member of the Federal Deposit Insurance Corporation, your deposits at the financial institution will be insured for up to $250,000 (per depositor, per ownership category). Knowing that your savings are safe in the event of a bank failure can be a big relief. (Slick tip: Here are the 5 safest banks right now.)
• Rising rates: If you look back at America’s most dire inflation periods, interest rates often rise before a recession in an effort to bring inflation under control. Higher interest rates can work against you where debt is concerned. But you can also take advantage of higher interest rates on CDs to grow cash savings faster. A CD ladder might also be worth considering if you’re worried about missing out on potentially higher interest rates later. 

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Mistakes to Avoid When Using CDs

CDs have the potential to be a valuable part of your overall savings and investment plan, especially during unstable economic times like a recession. Yet there are missteps you can make when using CDs that could undermine their value. 

Here are three mistakes you’ll want to avoid when saving money with CDs:

• Not comparison shopping: Finding the best CD rates may require a little research. It’s important to compare interest rates from multiple online banks and other financial institutions to make sure you find the best deal for your situation. 
• Early withdrawals: An early CD withdrawal is seldom a good idea. When you withdraw money from a CD before its maturity date, you’ll typically pay a penalty that could wipe out some or all of your interest earnings. It’s important to assess how much cash you can afford to leave untouched for a set period of time (your CD term) before opening this type of account. 
• Long-term savings: In general, CDs aren’t the best fit for long-term savings goals like retirement. Instead, consider speaking with a trustworthy financial advisor to find more appropriate long-term investment options that match up with your risk tolerance. 

Recommended CDs

CIT Bank No-Penalty Certificate of Deposit

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Member FDIC.

• Our Rating 4.5/5 How our ratings work
• Minimum
  Deposit Required$1,000
• 11-Month APY4.90% More Info

  Annual Percentage Yield is accurate as of May 9, 2023. Interest rates for CIT Bank's No-Penalty CD are variable and subject to change at any time without notice.

CIT Bank's No-Penalty CD offers one of the most competitive rates with no early withdrawal penalty on the market. With this account, you can earn a 4.90% APY, and the CD matures in just 11 months, which is shorter than average.

• Overview
• Pros & Cons

Overview

The CIT Bank No-Penalty CD offers a 4.90% APY, which may be ideal for people who want both flexibility and a higher interest rate.

Pros

• Strong APY for a no-penalty CD
• No opening or maintenance fees

Cons

• Relatively high minimum opening balance

CIT Bank Term Certificates of Deposit

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Member FDIC

• Our Rating 3.5/5 How our ratings work
• Minimum
  Deposit Required$1,000
• 1 Year APY0.30% More Info

  Annual Percentage Yield is accurate as of March 31, 2023. Interest rates for CIT Bank's term CDs are variable and subject to change at any time without notice

• 3 Year APY0.40% More Info

  Annual Percentage Yield is accurate as of March 31, 2023. Interest rates for CIT Bank's term CDs are variable and subject to change at any time without notice

• 6-Month APY5.00% More Info

  Annual Percentage Yield is accurate as of March 31, 2023. Interest rates for CIT Bank's term CDs are variable and subject to change at any time without notice

Many banks that offer CDs require customers to commit to lengthy terms of several years or more in order to earn the highest interest rates available. However, with CIT Bank's term CDs, the opposite is true. To get the best rates at CIT, you'll need to open one of its shorter-term CDs, such as its 6-month CD that pays 5.00% APY. If you want an easy way to save more money without having to wait years, CIT Bank's term CDs are a solid option.

• Overview
• Pros & Cons

Overview

If you’re looking for a dependable way to earn interest on your money in the short term, CIT Bank’s certificates of deposits may be an excellent choice for you. However, those looking to open a long-term CD may be better off looking elsewhere.

Pros

• Strong rates for 13- and 18-month terms
• FDIC insured

Cons

• Rates for longer terms unimpressive

Marcus by Goldman Sachs High-Yield Certificates of Deposit

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at Marcus by Goldman Sachs

• Our Rating 5/5 How our ratings work
• Minimum
  Deposit Required$500
• 1 Year APY5.00%
• 3 Year APY4.30%
• 18-month APY4.90%

Marcus by Goldman Sachs offers some of the strongest CD rates currently available, as well as an impressive array of term lengths. With maturities ranging from six months to six years, as well as three no-penalty options, most people should be able to find a CD that works for their individual needs. Marcus CDs also feature a relatively low minimum opening deposit of $500, and once funded, new CDs are backed by a 10-Day Rate Guarantee.

• Overview
• Pros & Cons

Overview

Marcus by Goldman Sachs offers competitive CD rates on term lengths ranging from six months to six years. Additionally, Marcus offers several no-penalty CDs that allow flexible access to your money without the worry of early withdrawal penalties. The $500 minimum opening deposit is lower than what many of Marcus’ competitors require.

One of Marcus’ standout features is its 10-Day CD Rate Guarantee. As long as you deposit the minimum required amount within 10 days of account opening, you’re entitled to the highest published rate during that period.

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Pros

• Strong interest rates
• New deposits backed by 10-Day CD Rate Guarantee

Cons

• Minimum opening deposit required

Other Savings and Investing Options During a Recession

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CDs are one low-risk option to consider during a recession. Yet there are also other ways to potentially grow your savings that may be worth exploring. 

If you want to keep cash on hand for an emergency fund without committing to the restrictive terms that a traditional CD requires, a high-yield savings account (HYSA) or money market account might be a better fit for you. These types of deposit accounts give you the flexibility to withdraw cash as needed, and some financial institutions offer competitive rates on your savings. 

Just keep in mind that interest rates on HYSAs and money market accounts are usually variable. So, if a recession does happen and interest rates begin to decline, you won’t have the benefit of fixed interest rates like you would with a CD. 

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It’s also OK to explore the idea of investing during a recession. But if you do so, have your eyes wide open to the risks. When you invest during an economic downturn, it can sometimes be like buying stocks on sale. Then, if you’re fortunate, the prices of those investments might recover over time. 

However, no one can tell the future. If a recession hits, there’s no way to predict when it will end, and there’s no way to know if the stocks you purchased or the mutual funds you invested in will rebound. If you panic or get into a tight financial spot and have to sell your investments at a loss, you risk losing money with this approach. 

Bottom Line

If you have extra cash available that you don’t need for six to 12 months or more, now might be a good time to consider saving with CDs. Interest rates on CDs are the highest they’ve been in a decade and a half. 

Experts are divided on whether a recession is on the horizon. However, if one does occur, interest rates on CDs and other deposit accounts will likely fall in response. As a result, there’s no way to know whether CD rates will continue to rise in the future or if they’ve peaked for the time being.

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