Certificates of Deposit: What to Consider and How to Use Them - Replay

Nov 12, 2025

Explore the nuanced world of Certificates of Deposit and their role in a rising interest rate environment. Discover why understanding inflation is crucial for assessing real returns, not just headline rates. Learn how banks set CD rates based on federal funds rates and competition. Gain insights on government policies aimed at stabilizing prices and how they affect your investment choices. Plus, get tips on comparing CDs with other fixed-income products and the importance of a balanced portfolio!

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ADVICE

Match CD Term To Rate Outlook

If you have idle cash earning less in savings, consider moving it to a CD offering a higher rate.
Choose maturities based on your view of future rates: short if rates may rise, long if you think they've peaked.

ANECDOTE

Banks Posting Rates Like Gas Stations

Brian describes seeing banks around his rural Missouri town posting competing rates like gas prices.
The visual shows how local competition and signage drive consumer attention to rates.

INSIGHT

Real Return Is Rate Minus Inflation

CD rates matter less than the spread between interest rates and inflation when judging real returns.
High nominal rates can feel attractive but inflation can erase purchasing power gains.

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In this episode on Certificates of Deposit (CDs) as investments, we talk about the nuanced decision-making involved in purchasing CDs and whether or not CDs are good investments, particularly in a rising interest rate environment, and we explain why interest rates are the only factor you need to consider.

Wealth creation isn't solely dependent on CD rates, and we need to consider the impact of inflation and interest rates to gain a comprehensive financial perspective. The episode also explores how government strategies to combat inflation by adjusting interest rates impact not only investors, but also shape the attractiveness of CDs as an investment option.

In a rising interest rate environment, buying CDs may seem like a good idea but it depends on your needs and goals.
Wealth isn't created by buying a CD based on a rate. It's created by understanding why the rate may not be all that important.
Banks look at what is known as the federal funds rate, also known as a benchmark rate. This is the rate banks charge one another to borrow money overnight that's needed to maintain reserve requirements.
Upstream in the decision making process is the Federal Open Market Committee or FOMC, who meet throughout the year to discuss and set monetary policy. Within these policies, rates are set and typically linked to inflation.
When those rates are set, banks may adjust rates on loans, deposits and certificates of deposit. But just like any business, banks will adjust rates to compete in their market as they seek to cover their costs and maintain a profit.
CDs specifically are an attractive tool for banks, because unlike a deposit account, CDs actually lock up customers with a maturity date, which gives banks better control of their cash flow. The higher rates draw in customers seeking to maximize their returns.
Rates on CDs matter, but not as much when you factor in inflation and interest rates. If inflation is at 7% and interest rates are at 5%, the net is 2%. The same is true if inflation is at 0% and interest rates are at 2%. You have to look at both numbers to get a full picture.
When you consider the gridlock within the housing market and the amount of debt our government holds, it's hard to believe rates can remain elevated over the long term. The government is desperately trying to combat inflation by raising rates.
These higher rates not only impact consumers, but they also impact the government. According to the Congressional Budget Office, or CBO, in June of 2023, they projected that annual net interest costs on the federal debt would total $663 billion in 2023 and almost double over the next decade. Interest payments would total around $71 trillion over the next 30 years, taking up to 35% of all federal revenue by 2053.
These numbers are impacted by interest rates and with lower rates come lower interest payments, so the government has reasons to see rates lower than they currently are.
The question is: Does it make sense to lock in CD rates while rates are high? It depends. If you have money sitting in a bank account that you don't need and the CD rate is offering a higher rate than your savings, then it might be a good option.
A good idea is to compare CD rates to other options like fixed annuities and money markets since they share some similarities but also have a few key differences that could make one choice better for your situation.
Certificates of Deposit are offered by banks as a savings account that offers a fixed interest rate over a specified period of time, ranging from one month up to five years. They carry penalties if funds are removed before maturity, and they're FDIC insured up to $250,000.
Fixed Rate annuities are issued by insurance companies and are financial products that offer a fixed interest rate over a specified period of time. Early withdrawals can incur a penalty, and interest earnings are tax deferred until you start taking distributions. The guarantees are backed by the claims paying ability of the insurance company and are insured by what is known as the State Guarantee Association.
Money markets are funds issued by financial institutions that are backed by highly liquid short maturity investments. Maturities usually range from overnight to just under a year, and assets can be quickly converted to cash with minimal loss of value. They are generally considered more risky than a bank, CD or insurance company annuity, and the underlying investments include such things as treasury bills, commercial paper and CDs.
While CDs offer the safety of fixed returns, they are not devoid of risks and limitations. It's essential to understand both the micro and macro economic factors that affect CD rates before diving in.

Mentioned in this episode:

BrianSkrobonja.com

Common Sense Financial Podcast on YouTube

Common Sense Financial Podcast on Spotify

BrianSkrobonja.com/Resources - Free Resources To Help You Protect Your Financial Future

Common Sense: YOUR Guide to Making Smart Choices with YOUR Money by Brian Skrobonja

"What to Know About How Banks Work"

The State Guaranty Association

References for this episode:

https://www.pbs.org/newshour/economy/americans-faith-in-banks-hit-low-after-failures-says-ap-norc-poll

https://www.federalreserve.gov/monetarypolicy/reservereq.htm

https://fortune.com/recommends/banking/will-cd-rates-go-up

https://www.usbank.com/investing/financial-perspectives/market-news/federal-reserve-tapering-asset-purchases.html

https://www.pgpf.org/analysis/2023/07/higher-interest-rates-will-raise-interest-costs-on-the-national-debt

Investing involves risk, including the potential loss of principal. This is intended for informational purposes only. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual's situation. Securities offered only by duly registered individuals through Madison Avenue Securities, LLC. (MAS), Member FINRA &SIPC. Advisory services offered only by duly registered individuals through Skrobonja Wealth Management (SWM), a registered investment advisor. Tax services offered only through Skrobonja Tax Consulting. MAS does not offer Build Banking or tax advice. Skrobonja Financial Group, LLC, Skrobonja Wealth Management, LLC, Skrobonja Insurance Services, LLC, Skrobonja Tax Consulting, and Build Banking are not affiliated with MAS.