MINT HILL, NC – With all of this market volatility have you thought to yourself, “maybe I should shelter my money in a safe, fixed rate certificate of deposit (CD).” In an uncertain economic environment, many consumers are seeking products like this. While benefits such as short-term durations and a guaranteed interest rate can be appealing, two factors are often overlooked that can negatively impact a conservative fixed rate: taxes and inflation.
Many of us do not think of the ”real rate” of return, which majorly impacts fixed income vehicles. For example, in 2021 the average six-month CD rate was 0.09%. The lowest it has been since 2000! Hypothetically, if we use the highest marginal federal income-tax rate based on $100,000 of taxable income for a married couple filing jointly at 22%, along side of inflation, the real return of this CD would be -6.93%. This may seem drastic, and keep in mind the tax rate assumed will not apply to everyone. This example gives you a good idea of how things work though.
At Fulcrum, we take the time to dig deeper and educate our clients. What is a good fit for one client might not be the right fit for you.
Let us help you find your clarity of purpose!
This article was written by Sammons Retirement Solutions for use by your local Cambridge Investment Research Financial Advisor.
To discuss further, please contact me at (704) 817-4480 Option 2, or by email at mmiller@fulcrumwealth.com.
