Investors may want to take advantage of today’s historically high interest rates before it’s too late. With the Federal Reserve poised to begin cutting interest rates later this year, many certified financial planners are advising clients to take advantage of high-yield investment accounts whose APYs are the highest in years.
An annual survey released last week by the nonprofit CFP Board found that more than 40% of planners recommend high-yield investments such as CDs and money market mutual funds. A good portion also advise their clients to avoid certain types of debt in today’s high-interest environment.
Investments recommended by financial advisors
The CFP Board surveyed more than 670 certified financial planners across the country in February, finding that 41% tell clients to move their funds into high-yield investment accounts due to current interest rates. For the same reason, 28% also advise people to reduce their exposure to high-interest debt.
About 3 in 5 CFPs also said that clients overall are more likely to start investing or increase their level of investing due to clients’ overall bullish outlook.
High yield investment instruments
At the committee’s latest meeting, the central bank kept the federal funds rate between 5.25% and 5.5% due to core inflation hovering around 3.2%, still above the target rate of approximately 2%. Even so, Federal Reserve Chair Jerome Powell has indicated that the Fed will likely cut interest rates three times this year.
While this is good news for borrowers, it also means that rates on high-yield savings accounts, CDs and other products are also expected to stabilize or decline. CD prices, for example, have increased in recent years, exceeding 5% or even 6% in some cases. These increases in annual percentage yields (APYs) have given Americans a rare pricing environment to grow their savings and investments over the past two years.
But these rates are unlikely to increase, and some products even see APY reductions. Some high-yield CD payouts began declining in December in anticipation of rate cuts in 2024, such as Barclay’s 12-month CDs, which fell from 5.5% in January to the current 5%.
That said, rates on high-yield products are still high: some of the best 12-month CD rates currently range from 4.5% to 5.3%. Other high-yield investment vehicles such as money market accounts and money market mutual funds, aka money market funds, also offer lower-risk ways to earn interest on your money.
CDs are particularly attractive at the moment because their rates are fixed for the agreed-upon period of time, even though interest rates generally decline during that period. Products with variable APYs, such as savings accounts and money market accounts, can change at any time and are likely to drop when the Fed lowers interest rates.
CFPs are encouraging investors and savers to take advantage of high APYs before rates continue to fall. To get the most out of your investments, you can learn more with Money’s breakdown of the differences between money market accounts and high-yield savings accounts or with our guide on how to scale CDs.
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