In the financial realm where certainty is a prized possession, a certificate of deposit offering a 6% return might seem like a golden ticket. But if you’re pondering over what the alternative to a 6% CD is, you might unveil avenues that not only match but potentially top such returns. Keep reading to learn more.
What Is the Alternative to a 6% CD Account?
If you’re seeking alternatives to a 6% CD, there are several options that may offer higher yields and greater potential for growth. These alternatives include:
- Stock market investments
- Bonds
- Real estate investment trusts
- Dividend aristocrats
- Mutual funds and ETFs
- Peer-to-peer lending
Each of these alternatives carries its own risk profile and potential for returns, and they should be considered as part of a diversified investment strategy. Here’s a closer look at each.
Stock Market Investments
The stock market is the quintessential alternative for those seeking to outperform CDs. Equities offer dynamic growth potential that can significantly outpace traditional CDs.
Over the long term, a diversified portfolio of stocks has the capability to deliver returns that a fixed-rate CD might not match, especially in times when market conditions are favorable.
Bonds
When it comes to balancing the equation of risk and return, bonds can be the middle path. Corporate and municipal bonds, and even some government securities, offer interest rates that can compete with the best CD rates, coupled with the opportunity for capital gains.
Inflation-protected securities, like TIPS, adjust with inflation and can serve as a sturdy hedge in your investment portfolio.
Real Estate Investment Trusts
For a twist on the traditional, REITs present an opportunity to invest in real estate without owning physical property. REITs often distribute dividends that can exceed the returns on a 6% CD and bring the added advantage of diversification against market volatility.
Dividend Aristocrats
Investing in companies with a strong history of dividend growth, known as Dividend Aristocrats, can offer an alternative to those hunting for the best CD rates. These companies have histories of increasing their dividend payouts and can provide an income stream along with the potential for stock price appreciation.
Mutual Funds and ETFs
Mutual funds and exchange-traded funds allow investors to pool their money in a diversified portfolio managed by professionals. Some funds are specifically designed to generate income, which could rival the returns from the best CD rates while offering the potential for capital appreciation.
Peer-to-Peer Lending
The digital age brings peer-to-peer lending platforms where you can lend money directly to individuals or businesses. This method can yield returns that outperform a traditional 6% CD, but be mindful — it carries a different risk profile.
Important Factors To Consider
Before diversifying your portfolio beyond the realm of CDs, it’s crucial to weigh a few key considerations.
Inflation and Your Investment
Any conversation about investment alternatives to a 6% CD would be incomplete without addressing inflation. With inflation in the mix, the real rate of return on a CD can be significantly reduced.
Alternatives that offer inflation-beating growth or income can be vital to maintaining the purchasing power of your investments.
Balancing Act: Risk vs. Return
As you scout for alternatives to a 6% CD, it’s crucial to remember the balance between risk and reward. Higher potential returns often come with higher risk, and your investment choices should align with your risk tolerance and financial goals.
Consulting the Experts
Before altering your course, consulting a financial advisor can help clarify your objectives and risk profile, ensuring your investment decisions are made with a compass that truly points north.
Final Take
As you unlock the door to potentially better returns, remember that exploring alternatives to a 6% CD is not about casting safety aside but about informed diversification. Whether it’s equities, bonds, REITs or other investment vehicles, each has its own set of advantages and disadvantages to know. By asking, “What is the alternative to a 6% CD?” you’re taking the first step toward a more robust financial future.
FAQ
Here are the answers to some of the most frequently asked questions regarding CD accounts.
- Are there any 6% CDs?
- Finding a 6% CD in the current market is quite rare but there are some financial institutions that occasionally offer this rate as a promotion or limited-time bonus. As of Nov. 9, 2023, you can find rates in this range at Bayer Heritage Federal Credit Union. Make sure you read the fine print to understand the stipulations and membership eligibility.
- What should I do instead of a CD?
- Instead of a CD, consider diversifying your investment portfolio. Options like high-yield savings accounts, bonds, stocks, mutual funds, ETFs and REITs can provide higher yields or growth potential. Your choice should align with your financial goals, risk tolerance and investment horizon.
- Who is offering a 5% CD rate?
- Some credit unions and online banks like BMO Bank, Bread Savings and Bask Bank offer CD accounts with rates in this range. These offers may require large deposits or come with specific terms and conditions.
Editor’s note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates’ editorial team.
FAQs
Instead of a CD, consider diversifying your investment portfolio. Options like high-yield savings accounts, bonds, stocks, mutual funds, ETFs and REITs can provide higher yields or growth potential. Your choice should align with your financial goals, risk tolerance and investment horizon.
What is the best alternative to CDs? ›
High-yield savings accounts, money market accounts and bonds can be good alternatives to CDs. Returns vary, but they're all considered low-risk investments. Regardless of where you keep your money, tending to your credit health is always a top priority.
What is better than a CD ladder? ›
It is important to keep in mind that while CD ladders are a great way to take advantage of high-interest rates, they're not considered a long-term investment strategy. For goals like retirement savings, a Roth IRA or a 401(k) that invests in equities in the stock market are the best choices.
Is it better to put money in a CD or money market? ›
Typically, a money market account pays less than a CD because a CD requires you to keep your cash in the account for a set period of time. Money market accounts with higher yields typically require you to maintain a higher balance to earn the highest APY, but you may need more money up front to open a CD.
What is the biggest negative of putting your money in a CD? ›
1. Early withdrawal penalty. One major drawback of a CD is that account holders can't easily access their money if an unanticipated need arises. They typically have to pay a penalty for early withdrawals, which can eat up interest and can even result in the loss of principal.
What is the alternative to 6% CD? ›
Savings accounts
Another alternative to 6% CDs, if you have a smaller balance, is Digital Federal Credit Union's Primary Savings Account, which currently offers a 6.17% APY on the first $1,000 in the account.
What do people use instead of CDs? ›
Series I savings bonds, or I bonds, which are government bonds issued by the US Treasury, are a common alternative to CDs.
Why should you put $20,000 into a 3 year CD right now? ›
A $20,000 initial deposit in a CD could yield between $260 and $4,700, with longer terms paying out significantly more. Short-term CDs have higher APYs, but long terms could guarantee high interest rates for a longer period.
Is it better to open one CD or multiple? ›
If your goals have different timelines, multiple CDs with different maturity terms could help you create an effective savings strategy. This allows flexibility in saving money for short- and long-term goals.
What is the best bank to put a CD in? ›
The best CD rates: our top picks*
- EverBank: Rates up to 5.05%
- Synchrony: Rates up to 4.90%
- Marcus by Goldman Sachs: Rates up to 5.15%
- MYSB Direct: Rates up to 5.20%
- TAB Bank: Rates up to 5.02%
- Capital One 360: Rates up to 5.00%
- Discover: Rates up to 4.70%
- Prime Alliance Bank: Rates up to 5.30%
Earnings on a $10,000 CD Over Different Terms
| Term Length | Average APY | Interest earned on $10,000 at maturity |
|---|
| 6 months | 2.53% | $127.17 |
| 1 year | 2.62% | $265.17 |
| 18 months | 2.22% | $338.29 |
| 2 years | 2.09% | $426.48 |
3 more rows2 days ago
Key takeaways. Interest earned on CDs is considered taxable income by the IRS, regardless of whether the money is received in cash or reinvested. Interest earned on CDs with terms longer than one year must be reported and taxed every year, even if the CD cannot be cashed in until maturity.
Why is CD not a good financial investment? ›
If inflation is rising, it could outpace the rate of return you're earning on your CDs, especially in a low interest rate environment. This means even though your savings is growing, it won't stretch as far when it's time to spend it. Notably, this is also a risk when keeping money in savings and money market accounts.
Can you ever lose money in a CD? ›
Losing money in a CD is highly unlikely. However, it's not impossible. If you're thinking about opening one, read the fine print about early withdrawal penalties, and be sure to compare more flexible options that don't have a maturity date. And even if you decide to open a CD, don't set it and forget it.
What can ruin a CD? ›
Harsher solvents such as acetone or benzene will dissolve the polycarbonate and thereby damage the disc beyond repair.
Why does it look like my CD is losing money? ›
That said, inflation, early withdrawal penalties and interest rate fluctuations can all eat into your CD's value. Making sure you select the right CD term for your needs and seeking out the best CD rates for that term can help you maximize your investment.
What will replace music CDs? ›
Although CDs have primarily been replaced by all-you-can-consume music streaming services, something interesting happened in 2021: CD sales rose for the first time in almost two decades, driving over $580 million in revenue for the music industry. While that pales in comparison to the $12.3 billion.
What has better interest rates than a CD? ›
It's also worth noting that the safety of CDs comes at a cost. Other investments, including many bonds, will offer better returns in the long run. Investors looking for a predictable return over a set period. Requires a one-time deposit, penalties for early withdrawal, and is FDIC-insured.
What have CDs been replaced with? ›
By 2000, the CD accounted for 92.3% of the entire market share in regard to US music sales. The CD is considered the last dominant audio format of the album era, as the rise of MP3, iTunes, cellular ringtones, and other downloadable music formats in the mid-2000s ended the decade-long dominance of the CD.
Are CDs worth it anymore? ›
The bottom line. CDs are a safe investment that can net you a higher return than most savings and money market accounts. Since rates have increased over the past year, they're more appealing to some savers. But with some banks already dropping rates, it's best to lock in a rate soon.
