CDs and Cashlike Investments Shine Amid Stock Market Slump
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Here's your money briefing for Monday, March 20th. I'm Erin Delmore for The Wall Street Journal, filling in for J.R. Whalen.
Why are individual investors fleeing the stock market right now?
We've talked about how some investors are looking outside the stock market for big returns and how individual investors are flocking toward traditionally safe investments like money market funds and cash. Another option that doesn't get a lot of attention is certificates of deposit. But now, demand for short-term CDs is at its highest level since the 2008 financial crisis. If you can get 5% by holding a CD, why would you go into stocks? We'll talk to Wall Street Journal markets reporter Hardika Singh about why these options are so attractive right now and what you need to know before you jump on the bandwagon. That's after the break.
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An investment that often doesn't get a lot of attention is certificates of deposit. But now demand for short-term CDs is at its highest level since the 2008 financial crisis. I'm Erin Delmore, and joining me is Wall Street Journal reporter Hardika Singh. Hardika, thank you for being with us. Thank you so much for having me. Give us a bit of context here. Why are individual investors looking for alternatives to investing in the stock market right now?
Well, the easy answer to that is that markets are horrible right now for investing. People are really, really nervous about last year and this year, too. Even though there has been a slight rebound, it seems like a lot of investors don't trust it. From late last year, we started seeing investors just rush into cash as an asset class. And it seems like this year, too, that trend is continuing. People don't have many places to go where they can hide out from this market volatility.
So what makes these investments like CDs, money market funds, high yield savings accounts and treasury bills so attractive right now?
These investments are usually considered to be cash investments or as safe as cash investments. The reason why is that you can go inside money market funds and they contain mostly U.S. government bonds, which are ultra safe. So you are buying a money market fund which buys those government bonds. So you're essentially, in a way, investing your money into something that is considered to be nearly as safe as cash, which is pretty good. If you go inside CDs, most of your money is insured by the FDIC. So up to 250K, the government will step in and essentially make sure that you have access to your funds. So a lot of these different investments, such as money market funds, treasury bills, high yield savings account, certificates of deposits or CDs, they're all boasting really high rates right now.
That's something they haven't done in a really, really long time. And obviously, in a market where stocks continue to go down, bonds continue to fall, that's going to be very attractive. If you can get 5% by holding a CD, why would you go into stocks?
Well, how is this different from what we've seen over the past decade?
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