What financial pros say about certificates of deposit for wealthier clients.
CDs have become increasingly popular since the Fed started raising rates in March 2022, with CD balances increasing $400 billion from $36.5 billion in April 2022 to $418.4 billion in January 2023, according to data from the Federal Reserve. And no wonder: Plenty of CDs are offering APYs of around 5% right now .
One thing he isn’t telling his wealthy clients to do right now: invest in CDs. “We do not allocate to CDs, but we see other opportunities to take advantage of high short-term interest rates through Treasury bills and short-term municipal bonds,” he says. Remember, interest income from CDs are taxed at your highest marginal federal income tax bracket and at the state level for most states. “Currently tax brackets range from 10% up to 37% and the higher the tax bracket, the less interest you keep,” says certified financial planner John Piershale at John Piershale Wealth Management.
Do other financial planners recommend CDs to their wealthy clients? As for whether financial planners tend to recommend CDs for their wealthy clients? It depends. Certified financial planner Blaine Thiederman says CDs are low-risk but they also offer low returns. “If you’re a high-net-worth individual, you’ve likely got a diversified portfolio already. According to the Federal Reserve, the average interest rate for a 1-year CD as of August 2023 is just 0.
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