Suze Orman believes retirees should invest in CDs. Should I listen to her?

Retired people need to be much more careful with their money than people who are still working and have time to recover from financial troubles. That’s why it’s especially important for seniors to be smart about what they invest.

Financial expert Suze Orman suggests CDs as a safe investment for retirees.. In fact, she said seniors should be putting a significant amount of money into certificates of deposit. But is that really a good idea?

Here’s why Suze Orman believes retirees should put their money in CDs.

Orman has long urged retirees to have “safe” funds kept outside of brokerage accounts. She suggests having three to five years of living expenses (not including an emergency fund) saved up so you can access them easily.

This is good advice. A market downturn can happen at any time. Retirees may not want to take their money out of the stock market when it crashed recently. This could mean your losses are locked in. They will need money to make ends meet while they wait for the market to recover.

But now Orman suggests putting some of this “safe” money into CDs.

“Because you don’t need to use all that money right now (that’s what emergency savings are for), I recommend putting this retirement savings account in a CD so you can pay more than a regular savings account,” Orman advises.

Is Orman correct?

So should we listen to Orman? maybe.

The reality is that there are many CDs today that pay rates above 5.00% (check out The Ascent’s current list of the best CD rates). While there also For savings accounts paying 5.00% or more, the CD interest rate is guaranteed to last for the life of the CD. Savings account interest rates are variable and can change at any time, so they are not guaranteed to last.

If the Federal Reserve lowers interest rates (which is widely expected to happen soon once inflation cools a little further), the high returns currently offered by savings accounts will fall. However, a senior who opens a CD at a competitive price can keep that price for the remainder of the year, whether it is one year or five years.

For retirees on fixed incomes, the guaranteed high interest rates on “safe” investments can be really attractive. Especially since you can’t mostly You will incur losses on CDs because they are FDIC insured. But there is a big caveat.

Buying CDs isn’t right for every senior.

Here’s the problem. You must agree to leave your money invested until the CD matures. For most CDs this can take anywhere from 3 months to 5 years. Otherwise you will be penalized. Withdrawing funds prematurely before they have earned enough interest to cover the penalty may actually result in a loss of principal.

Retirees who have retired due to this fine I think I will You will soon need access to “safe” funds. ~ no Open the CD with it. So, you should Only If you actually have years of living expenses, consider following Orman’s advice. and This is an emergency fund you can use right now.

Unfortunately, for many retirees, this is not reality. If you have enough cash to cover a few months or a year of expenses, you don’t want to tie it up in a CD. Especially since the economy is so uncertain right now. You don’t want to get stuck in a situation where things go south and you have to pay a CD penalty or withdraw money from your investment account.

Then what should I do?

The conclusion is this:

• If you’re retired and have 3-5 years of living expenses in cash (plus an emergency fund for big unexpected expenses), a savings account where you can access and invest at any time for about 1-2 years of that safe money. Please keep it in . Give your CDs a break as they mature within a year or two. This will ensure you always have accessible cash.
• if you don’t If you have that much liquid cash, save everything you have. You can get a competitive rate right now, and probably in the coming months, but you won’t risk a penalty if the economy takes a turn for the worse and you need to use your funds.

This means listening to Orman. ~can do That makes sense, but only for a limited number of seniors who followed her advice to keep plenty of liquid cash.

This savings account is FDIC insured and can earn 11 times the bank’s earnings.

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