As interest rates sit at their highest point in decades, investors are eyeing CDs and Treasury bonds for safe returns. Let’s break down these investment options to help you decide where to park your money in 2024.
Treasury bonds and certificates of deposit (CDs) have become hot investment choices this year. With the Federal Reserve keeping rates elevated, both options offer attractive yields without the roller coaster ride of the stock market.
CDs work like this: you give your money to a bank for a fixed time, and they pay you interest. The longer you commit your cash, the higher the interest rate you’ll typically receive. Currently, one-year CDs are offering around 4-5% at many financial institutions.
The big plus with CDs is their safety. They’re backed by FDIC insurance up to $250,000 per depositor, per bank. This means your money is protected even if the bank fails.
On the flip side, Treasury bonds are loans to the U.S. government. These come in different forms – Treasury bills (for short-term), Treasury notes (medium-term), and Treasury bonds (long-term). Right now, 1-year Treasury bills are yielding about 4.6%.
“Treasuries have long been considered the safest investment in the world,” says financial advisor Maria Chen. “They’re backed by the full faith and credit of the U.S. government, which has never defaulted on its debt.”
The choice between CDs and Treasuries isn’t always straightforward. Here’s what to consider when deciding between them:
First, look at yields. Currently, short-term Treasuries are offering slightly higher rates than comparable CDs at most banks. However, some online banks and credit unions have special CD promotions that beat Treasury yields.
Next, think about taxes. Treasury bond interest is exempt from state and local taxes, while CD interest gets taxed at all levels. This tax advantage can make Treasuries more attractive, especially if you live in a high-tax state.
Liquidity matters too. If you cash out a CD early, you’ll face penalties – typically a few months’ worth of interest. Treasury bonds can be sold before maturity in the secondary market, but you might take a loss if interest rates have risen since your purchase.
“Many savvy investors are using a ladder strategy,” explains Tom Jackson from Bloomberg Financial. “They spread money across different maturity dates to balance higher long-term rates with the flexibility of regularly maturing shorter-term investments.”
For smaller investors, CDs offer simplicity. You can open one at your local bank or credit union with as little as $500 or $1,000. Buying Treasury bonds directly from the government requires setting up an account at TreasuryDirect.gov, though many brokerages now offer them without fees.
Risk tolerance should guide your decision too. While both options are considered very safe, Treasuries have the edge in absolute safety. The U.S. government can always print more money to pay its debts, while bank failures, though rare, do happen.
Interest rate predictions for 2024 suggest we might see rates start to come down if inflation continues cooling. This means locking in today’s rates for longer terms could be smart – if you don’t need the money soon.
Some investors are splitting their cash between both options. This approach provides diversification while capturing the benefits of each investment type.
Remember that both CDs and Treasuries are designed for preservation, not growth. They won’t make you rich, but they will protect your money and provide reliable income while you wait for other investment opportunities.
For 2024, the best choice depends on your personal situation – your tax bracket, how soon you’ll need the money, and how much effort you’re willing to put into managing your investments. Whatever you choose, it’s a good time to be a conservative investor.
