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When it comes to investing strategies, it makes sense for investors to continually seek opportunities that strike a balance between security and return on investment. After all, a well-balanced portfolio is a crucial component of a good investment strategy, as it’s important to try and reduce risk from more volatile assets by adding safe investments to the mix.
And, one often-overlooked option for diversification that deserves consideration is a certificate of deposit (CD) — and in today’s economic environment, a short-term CD could come in handy in particular. With a short-term CD, you’re able to earn interest at a high rate while keeping your money safe in the interest-bearing account for an abbreviated time period.
But why exactly does it make sense to opt for a short-term CD over a longer-term CD or another investment option this month? Well, there are a few different reasons for it. Below, we’ll break down what you should know.
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5 reasons to invest in a short-term CD this month
If you’re considering a short-term CD but aren’t ready to make the move, here are a few reasons why you may want to do so this month.
A CD offers stability in uncertain times
The global economy has faced unprecedented challenges in recent years, and the financial markets have been marked by periods of volatility. In times of uncertainty like these, many investors often seek stability and security for their hard-earned money. Short-term CDs, offered by a wide range of banks and credit unions, can provide a safe haven for funds with a fixed interest rate and guaranteed return of principal at maturity.
Unlike more volatile investment options such as stocks, short-term CDs offer a predictable and steady path for investors to preserve their capital. This stability becomes particularly appealing when economic indicators are uncertain, making short-term CDs an attractive choice for risk-averse investors.
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Rates are extremely competitive right now
While the primary appeal of short-term CDs lies in their stability, they also offercompetitive interest rates compared to other low-risk investment vehicles. In the current economic climate, short-term CDs often provide interest rates that outpace those of traditional savings accounts or money market accounts. Today’s short-term interest rates also surpass the rates available on longer-term CDs right now.
So, investors looking for a conservative approach to growing their wealth can benefit from the higher yields offered by short-term CDs, especially when compared to the low rates currently offered by traditional savings accounts. This added return can contribute to overall financial goals without exposing investors to unnecessary risk.
A short-term CD offers flexibility and liquidity
One of the distinguishing features of short-term CDs is their relatively brief maturity period, typically ranging from a few months to a year. This shorter time frame provides investors with flexibility and liquidity, allowing access to funds without the long-term commitment required by other investment options.
For those who may need to access their money in the near future for planned expenses or unforeseen emergencies, short-term CDs also offer an attractive balance between earning interest and maintaining financial flexibility. And, some financial institutions offer penalty-free early withdrawals for certain short-term CDs, providing an added layer of convenience.
A short-term CD can help diversify a well-balanced portfolio
Building a well-rounded investment portfolio involves diversifying across different asset classes to manage risk effectively. While long-term investments such as stocks and bonds are crucial components of a diversified portfolio, short-term CDs can play a complementary role.
Including short-term CDs in a balanced portfolio adds a layer of stability, providing a counterbalance to the potential volatility of other investments. This diversification strategy helps investors weather market fluctuations while preserving capital and earning a reasonable return on a portion of their portfolio.
A short-term CD lets you seize future opportunities
The financial landscape is dynamic, and opportunities for investment can arise unexpectedly. By opting for short-term CDs, investors position themselves strategically to capitalize on future opportunities. The flexibility of short-term CDs allows investors to reassess their financial situation periodically and make informed decisions based on evolving market conditions.
The bottom line
In conclusion, investing in a short-term CD this month can be a prudent financial move, offering stability, competitive interest rates, flexibility and diversification benefits. As investors navigate the complexities of the current economic environment, short-term CDs provide a reliable and secure option to preserve and grow wealth. By carefully considering the unique advantages of short-term CDs, individuals can make informed decisions that align with their financial goals and risk tolerance.
Angelica Leicht is senior editor for Managing Your Money, where she writes and edits articles on a range of personal finance topics. Angelica previously held editing roles at The Simple Dollar, Interest, HousingWire and other financial publications.
