What do experts say about how much is the maximum amount to deposit to a CD?

Ralph
00:00:00

Are you tired of feeling like youre missing out on potential earnings with your savings? Do you lie awake at night worried that your hard earned money isnt working hard enough for you?

Are your thoughts filled with anxiety about losing your money in the stock market roller coaster?

Well, todays episode might just be the answer to your prayers, because were diving deep into the world of certificates of deposits, or cds and how they can be a powerful tool in your financial arsenal.

Stick around to learn what experts say about the maximum amount of deposit in a CD, the benefits of using those cds as an investment vehicle, and how to ladder them for balanced performance. Plus, I'm going to share a personal story about a client who's grown his wealth using only cds. So let's get to answering that burning question.

How can cds help you maximize your savings while minimizing risk?

Narrator
00:00:51

Welcome to the Ask Ralph podcast, where listening to an experienced financial professional with over 30 years of experience can help you makes sense of confusing questions, current headlines and industry trends about taxes, small business, financial decision making, investment strategies, and even the art of proper budgeting. Ask Ralph makes the complex simple by sharing his real world knowledge from a Christian perspective with all things financial.

Now here's your host, Ralph Estep Jr.

Ralph
00:01:20

Now, yesterday's show, we talked about how to effectively apologize. Now that's a crucial skill, not just in your personal life, but in your overall financial journey as well.

If you miss it, I'm going to encourage you to go back and give it a listen. Listen, if you don't hear anything else I say at the beginning here. Learning to apologize can save you relationships.

It can save business deals, and even save you money in the long run. So John from Ohio writes this. He says, dear Ralph, I've been struggling to find a place to park my savings.

The stock market scares me, and I feel like I'm losing money by keeping it all in a regular savings account. I've heard about CDs, but I'm not sure how much I should invest or if they're really worth it.

Can you help me understand how to use CDs effectively without putting on my eggs in one basket? Now listen, John, I hear your concerns. I don't want you to know you're not the only one that's thought of that. Many of us struggle with this.

Were trying to find that right balance between safety and growth when it comes to our hard earned money. And that's why today's episode is so important. Remember, if you've got a question like John, go to justaskralph.com and submit your questions.

After all, that's why we call it Ask Ralph. Now, John's question reminds me of a powerful verse from the Bible, and it relates perfectly to your question, John.

And it's on the topic of wise investing. Now, it doesn't directly say wise investing, but Proverbs 21:5 says this.

The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty. That's harsh, but it's true. And this verse speaks volumes about the importance of careful planning. And John, that's what you're asking about.

And it also talks about patience in our financial lives. And that's exactly what we're going to explore with today's show about CDs. Let me tell you about my client, Tom.

You know, I don't use real clients names, but picture this. It's a cool morning, a crisp autumn morning, just like it is here today. And Tom and I are sitting down together, sitting across from me.

And Tom's a guy had been working with for over a decade. Now, Tom's story is remarkable, and it all started with a decision he made 20 years ago. And that was a decision he decided

At that point, Ralph, he said, I'm only going to invest in CDs.

Now you might be thinking as you listen to this route that sounds boring and overly cautious, and I can see many of your eyes rolling thinking about the low returns on CDs. And I'll be honest, when Tom first told me about his strategy, I had my doubts. It kind of went against all the things I'd learned.

But let me tell you, the results have been nothing short of amazing. You see, Tom was a lot like you, John. He was scared of the stock market volatility. He wanted a safe place for his money to grow.

He had heard horror stories of people losing their life savings and market crashes, and he wasn't about to let that happen to him. He would tell me about his own father.

His own father had tied up all his money in the stock market come the early nineties, and he nearly lost it all in those recessions in the early nineties. And listen, Tom wasn't going to let that happen to him. So Tom did what I encouraged all of us to do.

He did research and he settled on a CD ladder strategy. So let's talk about what is a CD ladder strategy? A lot of people hear that and they're like, ralph, what are you talking about?

And it's really pretty simple.

With a CD ladder structure, what you're going to do is you're going to divide your money into chunks and then you're going to invest them in CDs with ranging intervals. So, for example, let's say you had $10,000 to invest. Let's say you cut it into $2,000 chunks.

So that's five, you buy five CDs, you might buy one that's a six month maturity, another one that's a twelve month maturity, and then you might go to 2345 years. And this is exactly what Tom did. And as each CD matured, he'd reinvest the money in a new five year CD. And the benefit to that?

Would he be taking advantage of typically higher interest rates on those longer term CDs because of that compound interest?

The truth is people out there that are looking to offer these cities to banks and credit unions of financial institutions, if you sign up for a longer term, they're generally going to give you a better interest rate. So let's jump back into Tom's stories, because here's where it gets interesting. So over the years, interest rates fluctuated. That's what they do.

Like just recently we had an interest rate cut. But see, the thing is, Tom CD ladder provided him with a steady, reliable income stream.

Now, he wasn't going to get rich overnight, that's just the nature of what it was. But his wealth grew consistently, year after year, without the stress.

He didn't worry about looking at the newspaper in the morning or seeing on the news how the market had tanked or crashed. But Tom didn't just stop there. He made this his investment habit. And every time he could, he added to his seedy investments. He did that regularly.

Now, he did stay within the FDIC insurance limit. So let me talk about that for a second, because here's the thing you need to understand.

Most experts generally recommend not exceeding the FDIC insurance limit of $250,000 per depositor per insured bank. Well, what does that mean?

That means that the FDIC, that's the Federal Deposit Insurance Corporation, will guarantee your money up to that limit of $250,000 per depositor per bank. Now that's for each account category, and this ensures that your money is fully protected.

So as long as you're below that $250,000 amount individually for each institution, you shouldn't be in trouble. Now, you might be wondering, Ralph, how much has Tom's wealth really grown using this strategy?

And let me tell you, I can't tell you about specifics because I wouldn't disclose that, but it's substantial. In fact, his initial investment has more than tripled over the past two decades. And here's the best part. He sleeps soundly every night.

He knows his money is safe. He knows it's growing steadily, and he is not on that stock market roller coaster.

Every day I hear clients telling me, Ralph, what is this market doing? When is it going to crash? I am scared to death. But here's the real kicker. Tom's story isn't unique.

I've seen countless clients achieve impressive results using cd strategies, but the key is understanding how to use them effectively. So let me break down some actionable steps you can take to make CDs work for you. Number one thing, and it's the thing I love about CDs. Start small.

You don't need a fortune to begin. Many banks offer CDs with a minimum deposit as low as 500 or $1,000. And pretty much everybody can get that at 500 or 1002nd.

Thing I'm going to do, as we talked about, create that ladder. Divide your savings into multiple CDs with different maturity dates.

This gives you regular access to your money and the opportunity to reinvest it at potential higher rates. And here's the thing you've got to do. You've got to plan these intervals or these maturity points that relate to your life.

So maybe you're saying, Ralph, you know what? In two years I want to buy a home. Well, then you need to set your intervals up for that.

Maybe you're going to be buying a car in six months or a year. So create the intervals for that. Maybe you're paying for a kid's education.

Maybe that's five years down the road, so you can go to that longer term CD. But it all comes down to that financial planning of when you're going to need the money. Number three, stay within those FDIC limits.

Remember, the maximum amount insured is 250,000 per depositor per bank.

If you have more to invest than, like many clients that I have who do just the CD thing, they might have multiple banks they're working with, even multiple. Maybe they're in the credit union for some of it, they're in a bank for some of it. They're in an investment company for some of it.

They're really spreading out that risk.

Number four, and Tom did this as an expert, you've got to reinvest regularly as your CDs mature, consider reinvesting the principal and the interest into the new CDs, because then you take advantage of that compound growth. What does compound growth mean? It's pretty simple. You effectively earn interest on interest.

So if you have that thousand dollar CD, let's say you have a five year thousand dollar CD, and after matures it earned $100. Then you go and reinvest that, not just 1000, but the 1100 into the new CD. Then what are you doing?

You're taking the benefit of that compound interest. You're earning interest on interest, which is beautiful. And here's the thing.

If you've heard anything I say today, listen to what I'm getting ready to tell you. Number five, you've got to keep some money liquid.

I'm not telling you to go lock up all your money in CDs because they offer better rates and savings account. But you got to make sure you still have an emergency fund that's easily acceptable. It's got to be easy to get. It's got to be easily accessible.

That's the word I was looking for. But make sure you still keep that emergency fund in a separate place. Now, I know what some of you might be thinking, Ralph.

CDs sound great, but you're missing, Ralph. What about inflation? And listen, it's a valid concern right now. Inflation is still growing at a scary rate. And it's true.

In some years, by doing this CD laddering, CDs might not keep pace with inflation. You might find that you've got a CD that's a dud. But if you're using that laddering strategy, then you've got to be able to reprice itself.

And remember this, CDs are just one tool in your financial toolbox. They're ideal for the portion of your savings where you prioritize safety and predictability over that aggressive growth. Think about it like this.

So a real great example. My grandfather was a gardener, and when he would sell out his garden, he had different vegetables and different flowers.

Each one of them was a different variety. Well, you got to think of your investments in that same regard. Maybe you've got CDs in the first section of your garden.

Then maybe you've got some exchange traded funds. Maybe you've got some, I don't know, you've got money market accounts, you've got some stock investment.

It's all part of that gardening, each of them having a different thing. You're not putting all your eggs, and now we're talking about gardening.

But let's say you're not putting all your corn and your artichokes in one basket. Well, now I want to come back to a question that John is. And it's a pain for many of you.

Many of you might be feeling this, and that's that fear of losing your hard earned money. It's real. And John, it sounds to me like it's almost paralyzing to you. And I get it. I've been there.

The fear of losing your hard earned money is real, and it can be paralyzing. But here's the thing. Doing nothing isn't the answer either.

But if you can come to understand and utilize tools like CDs, you can take control of your financial future. And you can find that balance between safety and growth. And there is a balance. You can find a well.

Now, you might be thinking, Ralph, I'm overwhelmed. I'm unsure about how to implement these strategies in my own financial life. I want you to know this. I'm here to help you.

You don't have to navigate this journey alone. These things are hard, and they're not something that everyone understands. See, I'm an expert when it comes to managing money.

I've been doing this since 1994. I've worked with hundreds of clients. I've helped them reduce their anxiety.

I've helped them increase their savings, and I've shown them the way to escape the bondage of living paycheck to paycheck. Maybe you're thinking, Ralph, I feel like I'm always going three steps forward only to be pushed four steps back.

It's frustrating, it's scary, and it's something I understand, and it's something you don't have to do alone. So I'm going to invite you to schedule an appointment with me to create a financial plan.

I want to create a personalized plan for your finances, not some cookie cutter approach where everybody does this or everyone does that. It's personalized. When you're ready to do that, just go to askraph.com and click on the banner that reads, book a call with Ralph.

Now you know what you might be thinking. What's the catch, Ralph? Well, there isn't one. Truth is, I do charge $150 consultation fee. But here's my promise to you.

If we're not able to develop a personalized plan to help you move forward, I'll refund your consultation fee. That's how confident I am that we can work and do something together. Because I know this. Working together, we can improve your personal finances.

Maybe you need help with your business finances. Maybe like Ralph, my personal finances are great, but my business is off the tracks. Maybe you need help growing your business.

I can help you with all of those things. And I can help you achieve all your financial goals. So don't wait.

Schedule that appointment today, and let's create a plan that will set you on the path of financial freedom and peace of mind. Get off of that feeling of anxiety in that roller coaster. Now, tomorrow we're going to be tackling another crucial topic.

What are seven ways my bank can help me stick to my budget? Yes, your bank can actually help you stick to your budget, so you don't want to miss that one.

And as I close, remember this, my passion is to help you achieve financial success. That's my goal. That's why I turn on this microphone. That's why I turn on this camera. This is why I sit here and impress upon you what we can do.

My goal is to help you live out your dreams. They're your dreams. Everybody's dreams are different.

And at the same time, I want to show you how to grow in your faith because I know working together, we can master your finances from that Christian perspective. So, as I always say, stay financially savvy and God bless.

Narrator
00:14:48

Thank you for joining us on the Ask Ralph podcast. And with a simple click to subscribe, we'll invite you back to our next episode. And remember, financial issues don't have to be complicated.

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