U.S. savings bonds

I need a ‘rainy day’ fund. How much money should I put into CDs?

STATEN ISLAND, N.Y. — – In today’s economic times, we all want to get the best bang for our buck when it comes to earning interest on our hard earned money.

And more often than not, people wonder just how money they need to keep liquid in the bank for a “rainy day” fund — often used when experiencing financial hardship, like loss of employment or unexpected medical costs — and what portion of their assets can be wrapped up in higher-risk investments.

For this reason, we caught up with Dennis Surmanek, a senior financial advisor and managing partner with Wells Fargo Advisors Financial Network in Bloomfield, to find out more about CD (Certificates of Deposit) and U.S. Treasury bonds.

Q. How much money should I put into CDs?

Surmanek: “CDs can be a good option for short-term savings or as a way to diversify your investment portfolios. Generally, financial experts recommend keeping 3-6 months’ worth of living expenses in a savings account or CD for emergencies — dubbed your ‘rainy day’ fund. But remember that the money isn’t fully liquid, and if you need to break the CD mid-term it could cost a small penalty.

CDs can be a part of an overall investment plan. However, keep in mind that CDs typically have lower interest rates than other types of investments, so it’s important to weigh the potential returns against the liquidity of your funds. It’s always a good idea to consult with a financial advisor to determine the best strategy for your specific investment objectives, risk tolerance, time horizon and diversification needs.

Generally, CDs may not be withdrawn prior to maturity. CDs are FDIC (Federal Deposit Insurance Corporation) insured up to $250,000 per depositor, per insured depository institution for each account ownership category and offer a fixed rate of return, while the return and principal value of other investments will fluctuate with changing market conditions.”

Q. What’s the difference between CDs & Treasury Bonds?

Surmanek: “CDs and U.S.Treasury bonds are two different types of investments.

A CD is a savings certificate that is issued by a bank or credit union. It requires a minimum deposit and has a fixed term, usually ranging from a few months to several years. The interest rate on a CD is typically higher than a traditional savings account, but lower than other investments like stocks or bonds.

On the other hand, U.S. Treasury bonds are issued by the U.S. government to finance its annual spending. While all fixed-income investments are subject to price volatility as the interest rate environment changes, Treasuries are considered lower-risk investments because they are backed by the full faith and credit of the U.S. government for the timely payment of interest and principal if held to maturity. There is no guarantee as to the market value of these securities if they are sold prior to maturity or redemption. There are different types of U.S. Treasury Bonds, including Treasury bills, Treasury notes and Treasury bonds, each with its own maturity date and interest rate.

The main difference between CDs and U.S. Treasury Bonds is that CDs are issued by banks or credit unions, while U.S. Treasury Bonds are issued by the U.S. government. CDs are generally considered to be lower-risk investments than stocks or bonds, but they also offer lower returns. U.S. Treasury bonds, are considered less risky than stocks and can provide a higher return than CDs. Government bonds, unlike stocks, are guaranteed as payment of principal and interest by the U.S. government if held to maturity. Although government bonds are considered free from credit risk, they are subject to interest rate risk. Bond prices rise as yields fall. Keep in mind, they do trade daily, and have a trading value which could be worth more or less, during the tenure of the bond.

All fixed-income investments may be worth less than original cost upon redemption or maturity. Yields and market value will fluctuate so that your investment, if sold prior to maturity, may be worth more or less than its original cost.

Q. Are Treasury Bonds and CDs both FDIC insured?

Surmanek: “No, only CDs are FDIC protected. Treasury bonds are not.

FDIC protection is a federal insurance program that protects depositors in case their bank or credit union fails. It covers up to $250,000 per depositor, per insured depository institution, for each account ownership category.

Treasury bonds, on the other hand, are backed by the full faith and credit of the U.S. government, as to timely payment of principal and interest if held to maturity, giving these securities one of the highest credit qualities available in the fixed-income markets today. In the rare event that the U.S. government defaults on its debt obligations, the value of Treasury bonds may be affected, but they are not covered by FDIC insurance.

It’s important to note that while CDs are FDIC insured, they are subject to certain limitations and restrictions. For example, there may be penalties for early withdrawal, and the interest rates on CDs may not keep pace with inflation over the long-term. In addition, if a CD is purchased at a premium in the secondary market, the premium over the face amount is not covered by FDIC insurance. Speaking with a financial professional can put into perspective the right mix of investments for your portfolio.”

If you have a financial question you’d like answered, please send to [email protected] and we’ll find the right expert to answer your question.


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