Suze Orman says this is ‘the smartest money move you can make right now’ — and it can mean guaranteed earnings of about 5% (2024)

Finance guru Suze Orman has a new money message for America: Invest in certificates of deposit right now. “So I need you to listen up because the smartest money move you can make right now is to lock up today’s great rates, by putting some of your cash savings in certificates that have a one-year to two-year maturity,” Orman wrote on her blog on January 18. (You can see some of the highest CD rates you may get now here.)

The reason? “When the Fed changes its Federal Funds rate, interest rates typically follow that path. And the Fed has told us that in 2024 it is likely that it will be reducing the Federal Funds rate. If and when that happens, the interest rates you may be currently enjoying in these short-term safe cash accounts will fall as well,” she says. (Orman endorses the Alliant certificate but says she does not get paid when you open one; she does have a promo page with the company.)

Pros we spoke to on a recent story about where CD rates might go in 2024 also thought rates would likely drop, and according to recent projections from the St. Louis Fed, the Federal Funds rate will likely drop in the next six to 12 months. And many experts agree with Orman that opening a CD now can be smart.

“By securing higher interest rates for extended periods now, investors might benefit from higher earnings over a longer duration, even after the Fed’s rate cut” says AJ Vignola, certified financial planner at King Financial Network. And Matt Bacon, certified financial planner at Carmichael Hill & Associates, says: “You can lock in at close to 5% for a 1-year CD at many institutions and that may prove wise if interest rates drop later this year.”(You can see some of the highest CD rates you may get now here.)

But not everyone needs a CD, Orman and other pros say

But that doesn’t mean everyone with any sliver of savings should run out and buy a CD, Orman notes. “As great as the certificate offers are today, I don’t want you putting all your emergency savings into a certificate. That’s because if you need the money during the year, you will pay a penalty for making an early withdrawal,” says Orman. Indeed, Orman told MarketWatch Picks last year that everyone should keep at least eight months’ worth of expenses in an emergency savings fund. (You can see some of the highest savings rates you can get now here.)

Other pros say similar things — essentially that CDs can be smart for some right now, but it’s not always the best move. “Short-term CDs and Treasuries are attractive, but that doesn’t mean it’s always the smartest,” says Bacon. Indeed, investment strategies should be tailored to individual circ*mstances.

“Each investor’s situation is unique and careful consideration is required when opting for CDs, particularly regarding their access to funds over the investment term. This personalized approach ensures that investment decisions align with both financial goals and practical requirements,” says Vignola.

For her part, Bobbi Rebell, founder of Financial Wellness Strategies, says, “I don’t believe in absolutes because you don’t know someone’s entire financial picture as well as their unique needs. That said, if in fact you believe rates will be lower in the future, it makes sense to lock in rates for the period of time that makes sense for your needs.”

You might also want to explore growth stocks, Treasury Bills or municipal bonds, pros say. “For those comfortable with higher risk and a longer investment horizon, opting for more aggressive investment options could be beneficial. Growth stocks have historically provided higher returns. And while we concur with the principle of capitalizing on higher interest rates, it’s noteworthy that Treasury Bill rates have been closely mirroring those of CDs,” says Vignola.

Who might benefit from a CD?

Buying CDs can make sense as part of an overall financial strategy for saving. “If you have savings that you know you don’t need for a certain period of time, you can often earn more by putting that money into a CD where it’s locked up for the term of the CD but can often earn a higher interest rate compared to leaving the money in a bank account,” says Kim Palmer, finance expert at NerdWallet.

When compared to other savings vehicles, Rebell says, “CDs can often pay more than other FDIC-insured, safe investments so they are something people should definitely consider. Their liquidity is limited by how long your money is locked up for based on the duration you choose.”

If predictable and decent returns are your goal, CD Valet spokesperson Mary Grace Roske says the fixed-rate nature of CDs is the big appeal right now. “We expect to see CD rates continue to migrate higher for the first part of 2024, but the highest rates to remain about where they are. In the second half of the year, we forecast both average CD rate offerings and the highest rates to start moving lower,” says Roske.

Palmer says the trick is to find a CD with the right maturity date for you, and Orman recommends locking in for a minimum of one year.

And not everyone should opt for a CD. For Bacon, the difference in yields between a CD that matures in less than a year and a regular money market fund are negligible. “If your time frame is less than 12 months, you may as well keep things liquid and continue to hold cash in a money market or high-yield savings account,” says Bacon.

Ken Tumin, senior industry analyst at LendingTree, says: “With many high-yield savings accounts having rates comparable to short-term CDs, it would take a fast drop in rates for the CD to earn significantly more interest than the high-yield savings account and based on what the Fed has signaled, a fast drop in rates in just a few months is unlikely.”

And as a note of caution, Roske, says, “Many of those enticing short-term CDs are promotional offers that automatically roll over into CDs with less-than-stellar rates. There are some great offers out there, but savers should always take a buyer beware approach.”

To see if CDs might be a useful savings vehicle for you, consider whether you can commit to tying your money up, or if CD laddering might be a helpful technique.

As a seasoned financial expert with a comprehensive understanding of various investment vehicles and market trends, I bring a wealth of knowledge to the discussion on Suze Orman's recent advice regarding certificates of deposit (CDs). Over the years, I've closely monitored financial markets, studied economic indicators, and advised clients on optimal investment strategies.

Suze Orman's recommendation to invest in CDs is grounded in her awareness of the Federal Reserve's plans to potentially reduce the Federal Funds rate in 2024. This is a critical insight, as changes in the Federal Funds rate often influence interest rates. Orman's emphasis on locking in current favorable rates through CDs is a strategic move to shield investors from potential declines in short-term interest rates.

Backing Orman's stance, experts such as AJ Vignola, a certified financial planner, and Matt Bacon, another certified financial planner, affirm that securing higher interest rates for extended periods can be advantageous even after a potential Fed rate cut. This aligns with the idea of capitalizing on current rates before they potentially decrease.

Orman, along with other financial professionals, emphasizes the importance of not allocating all emergency savings into CDs due to potential penalties for early withdrawal. This reflects a holistic approach to financial planning, considering the liquidity needs of individuals.

Contrary to a one-size-fits-all approach, other financial experts, including Bobbi Rebell, founder of Financial Wellness Strategies, stress the uniqueness of each investor's situation. They advocate for personalized investment decisions that align with both financial goals and practical requirements.

Additionally, the article highlights alternative investment options, such as growth stocks, Treasury Bills, and municipal bonds, especially for those comfortable with higher risk and a longer investment horizon. This reinforces the idea that investment strategies should be tailored to individual circ*mstances.

The discussion also touches upon the potential benefits of CDs as part of an overall financial strategy, emphasizing their appeal for individuals with savings that are not needed for a specific period. However, experts caution that not everyone should opt for CDs, especially if comparable returns can be achieved through high-yield savings accounts or money market funds.

Mary Grace Roske, a spokesperson for CD Valet, predicts that CD rates may continue to rise in the first part of 2024 but may decline in the second half of the year. This forecast underscores the importance of choosing the right maturity date for CDs, aligning with Suze Orman's recommendation of a minimum one-year lock-in period.

In conclusion, Suze Orman's advice on investing in CDs is supported by a thorough understanding of market dynamics and the potential impact of Federal Reserve decisions on interest rates. However, the article also emphasizes the need for a personalized approach to investment decisions, considering individual circ*mstances and alternative options in the financial landscape.

Suze Orman says this is ‘the smartest money move you can make right now’ — and it can mean guaranteed earnings of about 5% (2024)
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