'I want to make the process as straightforward as possible for my beneficiaries to access the funds'
"I want to make the process as straightforward as possible for my beneficiaries to access the funds." (Photo subject is a model.)
Dear Quentin,
I unexpectedly came into some money. I'd like to put it into CDs and I want to make the process as straightforward as possible for my beneficiaries to access the funds. In my experience, that can be complicated with some banks I'm familiar with. The CDs would likely be in the $10,000-$20,000 range.
I've also done some research and found that E*Trade may be a good option because its CD interest rates appear to be competitive. Another advantage is that the interest earned is not automatically swept into a settlement account, as it is with some brokered CDs available.
Are there any potential downsides or considerations I should be aware of when investing in CDs? Should I opt for a high-yield savings account? Is this a good time?
Building My Legacy
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You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com. The Moneyist regrets he cannot reply to questions individually.
CD rates can change frequently based on market conditions and the length of the term, but they currently range from roughly 3.75% to 4.50% annual percentage yield.
Dear Building,
You can still beat inflation.
Vanguard, E*Trade, and Fidelity are not banks, and they don't issue their own CDs. Instead, they act as a marketplace, giving customers access to brokered CDs issued by other banks and sold through their brokerage platforms. Rates can change frequently based on market conditions and the length of the term, but they currently range from roughly 3.75% to 4.50% annual percentage yield (APY).
E*Trade, which is part of Morgan Stanley $(MS)$, offers access to competitive CD rates, with 12-month terms currently hovering around 4.40% APY, along with Vanguard and Fidelity, and others. All three online brokerages also offer access to secondary-market brokered CDs, allowing investors like yourself to buy and sell existing CDs before they mature, although commissions or other trading costs may apply.
The appeal for consumers is one of convenience: You can open one brokerage account and shop for CDs from multiple banks, rather than opening accounts at dozens of different banks all over town like this woman. But before you buy, keep an eye on the interest rate, maturity date, what happens if you need the money before maturity, any commissions or fees, and, last but not least, Federal Deposit Insurance Corporation (FDIC) coverage.
Since you want to make things as simple as possible for your beneficiaries, pay attention to two things: How the account is titled, and who you have named as beneficiary. FDIC insurance protects eligible deposits up to legally required limits, but this has nothing to do with how easily your heirs can actually access the money - that comes down to how the account is titled and an up-to-date beneficiary designation. That's your responsibility.
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CDs vs. high-yield savings accounts
You're not in competition with anyone - you simply want the best rate available right now. Investing a large sum can be overwhelming, and you're not alone in feeling that way. Sometimes doing nothing is the right move. People sometimes make rash decisions when they have thousands of dollars burning a hole in their pocket, and risk turning to the wrong advisers - some of whom earn commissions on the very products they're recommending.
There's one key difference between CDs and high-yield savings accounts: liquidity. A high-yield savings account generally lets you access your money more easily, though some carry limits on withdrawals or transfers. A CD locks your money away for a set term - and in exchange, locks in your rate for that same term. A savings account's rate, by contrast, can move at any time, usually in step with the Federal Reserve's benchmark rate.
That predictability is what makes CDs popular with people who want a relatively safe place to park cash while earning a known return. Their rates tend to track broader interest-rate trends, including the federal-funds rate. One way to make the most of different terms is a CD ladder: spreading your money across one-, two-, three-, four- and five-year CDs so one matures every year. When it does, you decide whether to spend it, reinvest it, or move it elsewhere.
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The wisdom of chasing higher rates
Rates began climbing in 2022, but started falling in late 2024 when the Federal Reserve lowered its benchmark interest rate from its historic 23-year peak. Financial institutions compete ferociously for deposits, and headline-grabbing promotions - with plenty of restrictions attached - are part of that competition. Those offers can look tempting, especially when you're sitting on a large sum.
Your priority is to preserve the money and make it relatively easy for your beneficiaries to access. CDs can be a reasonable fit: you earn interest while keeping the money on a predictable schedule. The key is matching the CD's maturity date to when you'll actually need the cash. If you need the money before maturity, a traditional bank CD may impose an early-withdrawal penalty. (You may have to sell a brokered CD on the secondary market.)
Don't get distracted by dazzling rates. These are often loss leaders - promotions designed to pull in new customers, with a catch: a deposit cap, a short promotional window, or eligibility rules that may require you to live in the institution's home state. Sometimes, the advertised rate only applies to the first $3,000 or $5,000 you deposit. Some promotions are attractive, but the headline rate doesn't always apply to all the money you're looking to invest.
In other words, try not to let a few extra basis points make the decision for you. Most major brokerage houses will allow your beneficiaries to access your account with the right documents. For someone in your position, a slightly lower rate at an institution with a straightforward beneficiary process, clear terms and a transparent fee structure may be worth more than chasing the highest rate in town.
Go get 'em, tiger.
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-Quentin Fottrell
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