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The stock market is cooking right now. The S&P and the Nasdaq climbed to 13-month highs, boosted by the release of an optimistic US inflation report. And you might be thinking, “It’s not even Toyotathon…what’s up with Toyota stock?” Well, the automaker unveiled an ambitious EV strategy yesterday, and its surging stock propelled Japan’s benchmark Nikkei index to close above 33,000 points for the first time in 33 years.
If you’re in Minneapolis or Honolulu, congrats on living in the first major US cities to return to the Fed’s target of 2% inflation.
If you’re dealing with $7 orange juice like the rest of us, there’s still reason to be cautiously optimistic. Yesterday, the Bureau of Labor Statistics released the Consumer Price Index (CPI) report for May, and the closely watched measure of inflation showed that consumer prices rose 4% annually last month, less than half of the rate of peak inflation in June 2022.
While prices are still rising briskly in certain sectors of the economy, the overall report was a hopeful sign that our long inflation horror story could be entering its final chapters.
4 key takeaways from the report
1. Energy is doing a lot of the heavy lifting. Cheaper energy played a major role in pulling inflation down to 4% last month from 4.9% in April, per Axios. Gas prices plunged almost 20% from last year, when Russia’s invasion of Ukraine sent fuel costs to the moon, while broader energy prices fell nearly 12%.
2. “Revenge spending” is down. Once pandemic lockdowns lifted, Americans splurged on vacations, leisure, and recreation (new pickleball paddles!) in what economists dubbed “revenge spending.” Now that everyone has taken their weeklong trip to Italy, there are signs that revenge spending is waning: Airfare prices dropped 13% annually in May and, according to the US Travel Association, hotel demand is below 2019 levels. Bad for your Insta, but good for inflation.
3. Food prices are up. The cost of food ticked up 0.2% in May from April after staying flat in the previous two months, showing how inflation has persisted on grocery store shelves. But not all aisles are created equal—the price of eggs dropped nearly 14% from April (the biggest one-month drop since 1951), while fruit and veggie prices rose 1.3%.
4. More than anything else, rent is propping up inflation. Shelter costs are the largest category in the CPI report, and they’re still on the upward march, climbing 8.7% from a year earlier. The good news: Economists say this government data doesn’t reflect on-the-ground information, such as reports of softening rent by Zillow and Apartment List. Shelter costs in the CPI are expected to decline during the second half of the year.
Looking ahead…later today, Fed Chair Jerome Powell is expected to announce a pause in interest rate hikes after 10 consecutive increases. And, if inflation continues to drop like it did last month, he may not start up again anytime soon, analysts told Bloomberg.
Wanna actually build your wealth?
CDs are back—and they have a lot to say
Traditional savings accounts are slow to grow. CDs, however, can really help you start earning—and rates are the highest they’ve been in 15 years. Remember CDs? No, not those shiny discs that play music. We’re talking about certificates of deposit, the time-based savings accounts that offer fixed interest rates higher than those of a regular savings account.
Don’t worry if it still doesn’t ring a bell. Nearly 4 in 10 (39%) US consumers don’t know what a CD interest rate pays for a 12-month term, when in fact they’ve been laying low over the last few years.
But here’s the deal: Interest rates are the highest they’ve been in 15 years, which means CD returns are the highest they’ve been in well over a decade—making it a great time to open a certificate of deposit. But before you go running to the nearest bank, get a little info about CDs and their position within the current market.
To make it easy for you, the Brew teamed up with CD Valet and sat down with an actual* certificate of deposit to talk about why they’re gaining renewed popularity, how they work, and how you can use them to build a brighter financial future.
*Okay, okay, not an actual certificate of deposit. But still, read on.
Hi CD, it’s good to see you again. Before we dive in, can you tell us exactly what you are and what you do?
Sure! Basically, I’m a suped-up savings account that stores a fixed amount of money for a fixed period of time, and my interest rates are usually higher compared with your average savings account. When you redeem me, you receive the original amount deposited and the interest. We’re perfect for people looking to meet time-based financial and saving goals.
Let me try to make things a little more concrete. Say, for example, you open a CD under these conditions:
- initial deposit: $10,000
- rate: 5.00% APY (annual percentage yield)
- term length: 3 years
By the end of the 3-year term, your initial $10k would have accrued $1,576.25 in interest. So when you redeem the CD, you’d receive $11,576.25. Think of it like this: Your funds are going off to a long bodybuilding camp—you won’t see ’em for a bit, but they’ll return bigger, better, and safe ’n sound.
Thanks for clearing that up. It’s been a while since we last heard from you. Where have you been?
Glad you asked. I’ll speak plainly: I’ve been flying under the radar because there are too many misconceptions surrounding my functions and capabilities. (Sigh.) Most people don’t understand me.
I recently read one disheartening study suggesting that many have bought into these myths. In fact, 26% of consumers avoid opening a CD because they do not consider us flexible when it comes to accessing their funds. And get this: 23% don’t invest because they think that our earning potential is too small. Even worse? 18% are put off by the lengths of our required terms, and 23% admitted they don’t even know enough about us to feel interested.
But here’s the silver lining: Rates are soaring, so people are paying attention to us again—and for good reason. We can really help you earn steadily and securely.
Let’s talk about some of these misconceptions. What do you say to those who don’t see the value in your earning potential?
You know I speak matter-of-factly, so I’ll be real. They’re wrong. Interest rates are currently the highest they’ve been in 15 years, which means return on investment for us is huge these days. Don’t believe me? I recommend skeptics consult a CD index like CD Valet and take a look at current APY rates. Many banks are currently offering rates ranging between 5.00% and 5.80% APY. That’s huge! Compare that with the average APY of your everyday savings account, which sits around 0.39%. I mean, c’mon—do I even need to say why people should put their money in us?
You make some compelling points. What do you say to skeptics who complain about being locked into CDs for too long? Can you clear up term lengths?
It’s true that withdrawing funds from one of us before we reach maturity can result in early withdrawal fees (what folks in the biz call “breaking fees”). Banks will often base these fees on simple interest. For example, they could charge the equivalent of 3 months’ interest for early withdrawals of shorter CDs, or 12 months’ worth for longer terms. The numbers vary depending on your bank.
But look: Breaking fees isn’t always bad. Sometimes, withdrawing early, paying the fee, and applying those funds to a new, more promising CD can actually increase your net earnings. To determine if early withdrawal could be beneficial, use a breaking-fee calculator to crunch the numbers. They’re simple—just punch in your info and calculate.
I understand why people might get nervous about this. Life happens, and sometimes you need to turn toward your savings account for some rescue. But that shouldn’t stop you from opening a CD. Why? Because you’ve got tons of flexibility when it comes to choosing a term length. (Not to mention, you should have a separate emergency fund in addition to a CD anyway.)
CD terms come in all different shapes and sizes, from short- to mid- to long-term lengths, but they typically range from 3 months to 5 years. We’ve got an option for everyone.
Okay, I’m hooked. Where can I find the best rates?
Good! I’m glad you’re starting to see how I can help you build a better financial future. To find the best available CD rates and other great info, take a look at indexing website CD Valet. They’ll help you get the clearest picture of today’s top rates, calculate returns, and manage your accounts.
To wrap things up, let’s talk about the future. What’s in store for you?
Things are undeniably hot for us right now, with interest rates so high. I don’t see rates falling dramatically immediately, but they will eventually begin to cool off once banks start receiving more CD deposits and securing more cash. So it’s really a strike-while-the-iron’s-hot thing. However, regardless of the broader market and current interest rates, we offer depositors a safe and stable way to grow their money. I don’t see us completely disappearing anytime soon.
Well, there you have it—the CD has spoken. And wow, did they really help clear the air! It’s safe to say that CDs are one of the most appealing bank products available right now. High return rates? Yep. Flexible term lengths? Of course. Stable and secure way to grow your wealth? Definitely.
All figures, unless otherwise stated, are from YouGov PLC. Total sample size was 2,426 adults. Fieldwork was undertaken from May 10–14, 2023. The survey was carried out online. The figures have been weighted and are representative of all US adults (aged 18+).