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For the first time in a generation, Middle Tennesseans can earn meaningful income in a certificate of deposit (CD), one of the financial system’s safest and time-tested investments.

Right now, one-year certificates, at Ascend, which function the same way as CDs at other financial institutions, yield 5.12% Annual Percentage Yield (APY). Two years ago, it was 0.60% APY. Unsurprisingly, certificates have become a viable income-earning savings option.

The reason for the surge in certificate rates is tied to our federal government’s effort to manage the economy. Certificate rates generally are linked to the federal funds rate, an interest rate the Federal Reserve uses to, among other things, manage inflation. When consumer prices are high, the Fed raises rates to cool the economy and lowers them as inflation eases. When inflation surged to a 40-year high in June 2022, the Fed aggressively increased rates to where they are now (5.33% APY), a level not seen since July 2006.

With inflation steadily dropping last year, the Fed recently said it may be done raising rates. It also indicated that it could start lowering rates this year if inflation continues to decline.

What does it all mean? That’s easy. Middle Tennesseans may want to act now to lock in high rates before the Fed lowers the fed funds rate. Of course, nobody knows for certain what the Fed will do, but today’s rates offer a compelling opportunity to put your hard-earned money to work and boost your bank account.

Interestingly, many people have not used certificates as an income-generating and savings tool. A March 2023 survey by Forbes Advisor found that 28% of Americans have not purchased a certificate because the process is “too complicated and time consuming.”

It is not. Investing in a certificate is simple. Think of a certificate as a deposit where your financial institution guarantees to pay you a fixed rate of interest during a specific period of time, such as one month, six months, and one/two/three/four/five years. At the end of the interval, your money is returned (principal and interest).

The interest rate is usually significantly higher than what you would receive if your money was sitting in a savings or checking account. The one drawback is that you will incur a minor financial penalty if you withdraw your funds before the maturity date. Ascend, and most other financial institutions, have free online tools to explain how certificates work. 

Using certificates to achieve your saving goals 

At today’s rates, certificates now offer a compelling opportunity to generate higher income to enhance your savings goals. Here are three reasons why: 

Certificates offer high reward/low risk: Certificates are federally insured (up to $250,000) and are not subject to market risks like stocks or fixed-income securities (corporate bonds, U.S. Treasury notes and bonds) where you may lose money on your investment. The high reward comes in the form of high interest rates not seen in nearly 20 years. 

Certificates can be customized to achieve your savings goals and needs: Certificates can be ideal to set aside money and earn income to help pay for future expenses. For example:

Short-term (3-6 months): If you are confident you will not need access to your funds, certificate rates may earn substantially more compared to savings and checking accounts.

Intermediate term (6 months to a year): Certificates are an excellent option to protect and maximize income to pay for anticipated events, like a vacation, wedding or home furnishings).

Longer term (more than one year): Certificates can be used for a variety of large expenses, such as home renovations, education or a down payment for a home. 

Certificates offer flexibility: Most people have multiple savings needs to pay for a wide range of household expenses. Creating a certificate ladder that has varying maturities allows you to align the timing of your future expenditures and predict how much additional income you can receive to help finance those needs. If you do not need the money when the certificate matures, simply re-invest the cash in another certificate to continue earning income. 

Here’s the bottom line. Today’s rates offer Middle Tennesseans one of the best times in decades to earn a respectable rate of return on your savings. By investing in a certificate, you can generate meaningful cash to pay for the important things in your life and help you build a secure financial future.

Ascend is federally insured by the NCUA.