Is Now a Good Time to Replace Your Old Certificates of Deposit?

Is Now a Good Time to Replace Your Old Certificates of Deposit?

November 04, 2016

Certificates of deposit were once thought of as a safe investment with guaranteed returns. They are still a safe investment, but the rate of return on most CDs can’t compete with today’s rising rate of inflation. Due to inflation, the cash you have sitting in CDs may be slowing eroding away. It’s time to evaluate your investments and see if you could be earning a better return by replacing some of your old certificates of deposit.

CDs and Inflation

Traditionally, CDs have been a low-risk investment vehicle for individuals who want their cash to earn more return than it would sitting in their savings account, but don’t want to take the risk associated with investing in stocks and bonds. The idea being that the money is safely guarded away at the bank and a small return on the principal investment would be earned at the end of the CD term. In today’s economy, with inflation on the rise, this is not the case.

Even if the CD return rate keeps pace with inflation, you have to consider how much of your net income from the CD will go to taxes. If your effective tax rate is 33%, the net return of a CD yielding 1% is only 0.67%. The reality of your after-tax return can be disappointing. But what many people do not know is that there are alternative options that don’t sacrifice the safety of your money.

Cash in CDs

The first step is to evaluate how much cash you currently have in certificates of deposit and the term lengths of each. I don’t recommend pulling money from your CDs before the maturity date and getting hit with a penalty. The amount you would lose to the penalty would negate any return you will incur from switching investment vehicles.

The best option is take a look at your CD term lengths and determine when your funds will be available without the risk of a penalty. For those who have a chunk of cash in CDs for safekeeping that are reaching maturity, it is time to consider some alternative options for how to make your cash work best for you.


For those who love the safety of CDs and are having a hard time coming to terms with their losing battle to inflation—don’t despair! There are alternative options to CDs that will allow you to get the most bang for your buck. Sovereign accounts are one option that combats the low-return of CDs as they hedge against inflation. This account type offers more potential return, while also being easily liquified if quick cash is needed.

Another avenue to consider is using the cash from the mature CDs to pay down your high interest debt. Holding on to high interest debt is going to cost you big time and the sooner you can pay down that debt the better. While using the money from your CD for debt will not earn you return on investment, it will save you money in the long-run. The amount of interest you will have to pay by holding on to high interest debt for a year is going to be more expensive than any potential return you could expect to earn from a CD.

Investing in bond funds can also be a good use of the cash from your mature CDs. Bond funds will earn income for your portfolio and are specifically designed to mature at different rates so you can expect to earn income on your investment consistently. While bond funds still present some risk, they are less risky compared to investing in individual bonds.

How I Can Help

Does all of this information have your head spinning? I am here to help! Set up an appointment with me today at (626) 529-8347 or email me directly at and we can take a look at your portfolio together to assess if it makes fiscal sense to switch your current cash holdings in CDs to an alternative investment strategy. We will evaluate your overall asset allocation and make sure your money is working for you at peak performance.

About Ricky

Ricky Biel, CRPC® is a wealth manager with Haydel, Biel & Associates, an independent financial advisory firm serving individuals and families near Pasadena, California. The firm was founded in 2004 by Chris Haydel and Ricky Biel with a desire to provide unbiased, client-centered, community-based financial advice. Together, they built a practice that has grown into a family of caring, smart professionals committed to blending proven investment methodologies with cutting edge financial technologies that make it easier than ever to accomplish your goals. To meet and see how the HBA Wealth team may be able to help, contact them today at (626) 529-8347 or email Ricky directly at