Rates on C.D.s Are Soaring, but the High Rates May Not Last

If your stash is meant for emergencies, like a car repair or medical bills, you shouldn’t restrict your access to it for long. You want to be able to withdraw the cash quickly if you need it, without worrying about paying a penalty. You may be better off getting a slightly lower rate in a high-yield savings account, with fewer restrictions on withdrawals.

If you have a large expense coming at a known date in the future, however — say, a college tuition payment — a longer-term C.D. makes sense.

People who are retired, or near retirement, may also benefit from longer-term C.D.s with higher rates because they often want to have two years of living expenses in safely held cash, said Pam Krueger, founder of Wealthramp, a service that matches clients with fee-only financial advisers. The paltry interest rates of recent years punished retirees, she said, so higher C.D. rates of 3 to 5 percent offer welcome relief: “We’re in this golden moment.”

But given concerns about the economy and uncertainty about whether the Federal Reserve will continue raising rates, it’s unclear how long banks will continue to pay the high rates. One way to deal with the murky outlook, Ms. Krueger said, is to create what’s known as a “C.D. ladder,” in which you divide up your savings among several C.D.s with different maturities. The approach aims to maximize the interest earned, while allowing periodic availability of funds. For example, if you had $20,000, you could open four C.D. accounts, each having $5,000 deposits, with term lengths of three, six, nine and 12 months. When the three-month account matures, you can reinvest the money in another 12-month C.D. (or spend it, if you need the cash). You can set up a ladder yourself or have a brokerage do it for you.

Here are some questions and answers:

Given the recent banking upheaval, savers are especially interested in making sure their funds are protected. The Federal Deposit Insurance Corporation generally protects up to $250,000 per depositor, per insured bank. If you share an account with another person, you each get $250,000 of coverage, for a total of $500,000. (The federal government chose to insure all deposits — even those above the insured cap — at the two banks that failed in March. But there’s no guarantee the government will do that in the future.)