{"id":13483,"date":"2024-10-23T20:30:03","date_gmt":"2024-10-23T20:30:03","guid":{"rendered":"https:\/\/zacksim.com\/blog\/?p=13483"},"modified":"2024-10-23T20:30:05","modified_gmt":"2024-10-23T20:30:05","slug":"time-to-say-farewell-to-high-yields","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/time-to-say-farewell-to-high-yields\/","title":{"rendered":"Time To Say Farewell To High Yields?"},"content":{"rendered":"\n

Brett and Mary S. from Anchorage, AK ask: <\/em>Hello Mitch, We\u2019re a retired couple from Alaska, and we\u2019ve recently been lamenting what seems to be the end of high yields on savings accounts and CDs. It feels like it ended just as it started! We\u2019re curious if you have some general thoughts on what\u2019s next for retirees looking for low risk returns on cash. Thank you.<\/p>\n\n\n\n

Mitch\u2019s Response:<\/strong><\/p>\n\n\n\n

Thank you for sending in your question. Your question and general concerns are shared amongst many retirees, I\u2019m sure.<\/p>\n\n\n\n

Now that the Federal Reserve seems to have officially pivoted to easing monetary policy (via gradual rate cuts), banks and financial institutions are responding by lowering interest rates on savings accounts, CDs, and other yield-bearing accounts. Anecdotally, there was not a single bank paying 5% on a one-year CD as of last week, according to a national bank survey conducted by Bankrate.com. The average yield on money funds also fell below 5% for the first time in over a year.1<\/sup><\/p>\n\n\n\n

Looking ahead, with the Fed projecting an additional 100 basis points in rate cuts over the next year, we might reasonably expect these yields to continue ticking lower.<\/p>\n\n\n\n

For retirees like yourselves, I can fully understand why you\u2019d be lamenting the end of these solid, very low-risk yields. But it\u2019s important to remember why the yields went up in the first place: inflation. When you take a 5% annual yield on cash and adjust it for, say, 4% annual inflation, your \u201creal\u201d return is closer to 1% or even breakeven. As seen on the chart below, the double-digit yields on 3-month CDs that were a feature of the 1980s were not delivering outstanding returns for investors. They were essentially just maintaining purchasing power during a major inflation event.<\/p>\n\n\n\n

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