So, you’ve got a high-yield savings account stuffed with money and it’s burning a hole in your pocket. There are lots of options for investing that money, but two of the most popular, certificates of deposit and stocks, are on your mind.
How do you even begin to choose between the two? The products are very different with very different risk profiles associated with them. The best choice between CDs and stocks isn’t a clear-cut answer. Let’s explore each so you can better decide what’s the best one for you at this time in your life.
The best investment for you will change over time
If you spend any time on Financial Twitter, you’ll see all manner of financial products being touted as the one and only product to invest in. But the truth is that it’s not remotely that simple. The best investment at any given time is the one that’s best for you — that’s why so many different options exist.
If you’re choosing between CDs and stocks, there are a few factors to consider.
Our Picks for the Best High-Yield Savings Accounts of 2024
|
Citizens Access® Savings
|
Min. to earn $0.01 |
|
|
Capital One 360 Performance Savings
APY 4.25%
Circle with letter I in it.
|
APY 4.25%
Circle with letter I in it.
|
Min. to earn $0 |
|
American Express® High Yield Savings
APY 4.25%
Circle with letter I in it.
|
APY 4.25%
Circle with letter I in it.
|
Min. to earn $1 |
1. Your investment timeline
How long you have for your investment to play out is really important to what kinds of investments you’re choosing. If you’re a young investor with 10 or 20 years to wait for your investments to pay off, stocks can often yield amazing returns.
Just looking at S&P 500 data from the Federal Reserve Bank of St. Louis shows that if you’d bought $15,000 worth of the index on June 19, 2014, it would be worth $42,000 now – a 180% increase. However, if you’re living off your investment income or need cash sooner, a dip in the market could easily destroy your nest egg in the short term.
2. Your risk tolerance
The closer you get to retirement, the less you should be willing to tolerate high risk for your entire portfolio. Sure, throw a few bucks at the latest AI tech stock, because you never know, but if you can see retirement just ahead of you, it’s time to lower your risk profile.
Certificates of deposit can do just that, and with the 5%-plus rates that products like Barclays Online CD offer for a 1-year certificate of deposit, with almost no risk of loss (they are FDIC-insured, after all), they’re pretty much all upside if you don’t pull your money out early.
3. Your involvement and input
When considering the stocks-versus-CD conundrum, consider how much work you’re willing to put into your portfolio. CDs are easy — you check rates, choose one, and wait for your CD to mature. If you use a CD ladder, where you open CDs of varying term lengths, you might do this more often, but you’re still only taking a few very small looks at the bank’s product and choosing one, just like you would with a savings account.
If you want to be a good stock picker, you have to really invest your time and energy. Choosing a stock is no different than choosing a business to purchase — that’s what it is, after all. You’re buying into a business. And before you’d ever consider doing that, you want to look at the company’s financials, its history, its competition, and so much more.
Stock tips are great, but they’re only a starting point. You have to actively manage your portfolio if you’re investing in individual stocks, including deciding when it’s time to divest.
What should you invest in now, CDs or stocks?
Choosing the right investment for you is about assessing:
- Where you are in your investment journey
- How much effort you’re willing to put into that journey
- How much risk you can afford to take
Stocks are amazing investment vehicles on a long time horizon, and the market as a whole historically outperforms anything else you could be investing in, but they also take a lot of input and managing. CDs are solid investments when rates are up like they are right now and require almost no handling, no managing, and no effort to turn some money into more money without sacrificing hardly any of your time.
A mix of CDs and stocks, among other portfolio assets, is the ideal, but if you can choose only one, make sure it’s the one that makes sense for your life, not the one that everybody else says you should invest in.
These savings accounts are FDIC insured and could earn you 11x your bank
Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts could earn you 11x the national average savings account rate. Click here to uncover the best-in-class accounts that landed a spot on our short list of the best savings accounts for 2024.
