Everything you need to know about a financial CD before investing
What is a financial CD and how can they be beneficial investments?
The economy enters 2025 in reasonably good shape, with a low unemployment rate, modest inflation, a trend toward declining interest rates and strong corporate profit growth that has been giving the stock market a lift.
It’s thus not a bad backdrop for getting a fresh start on improving your finances. Here are some trends, issues and tips to mind in coming weeks:
Choose a savings resolution, and stick to it
New Year’s resolutions can provide the motivation to improve your financial situation in many ways, such as building up your retirement plan, reviewing your insurance policies or getting started (or updating) an estate plan.
However, the resolution most Americans are focusing on heading into 2025 is more basic: Sock more money into emergency savings. You can hold money in various forms from a money-market mutual fund to laddered bank certificates of deposit (those coming due in intervals such as every three months).
The idea is to have enough liquid cash to meet big unexpected expenses while earning at least a modest yield in the meantime.
In a Fidelity Investments survey, 72% of respondents said they suffered a notable financial setback this year, with nearly half having to dip into their emergency funds to pay for it. It’s thus no surprise that 79% of respondents hope to build up their cash reserves, 38% worry about unexpected expenses and 20% say another surprise could set them back in 2025. Women, more than men, said they didn’t have an emergency fund to dip into, but 80% of them resolved to build one in 2025.
Get relief from a consumer-friendly banking rule
A new rule that could help some of the most hard-pressed consumers is one that mandates lower overdraft fees at banks.
The federal Consumer Financial Protection Bureau in December issued a final rule that it said will cut typical overdraft fees from $35 per transaction to $5, saving an average of $225 annually for the 23 million or so households that pay such charges.
Bank critics contend the charges hit lower-income people hard.
Overdraft fees are “a form of predatory lending that exacerbates wealth disparities and racial inequalities,” said Carla Sanchez-Adams, senior attorney at the National Consumer Law Center, in a statement.
Some banks including Capital One, Citibank and Ally Bank already have eliminated these fees.
Consumer advocates hail the new rule but caution that it faces the risk of being overturned by Congress. That, they say, could come with simple majority votes in the Senate and House, with limited debate.
Get a jump on tax season, and use free filing services
The IRS is suggesting several steps that can be taken soon for people hoping to get a jump on the filing season for 2024 tax returns. These include gathering and organizing tax records, making an estimated fourth-quarter quarterly payment (if required) by Jan. 15, 2025, and opening an IRS Online Account. Income brackets, deductions and other tax aspects have changed a bit owing to inflation adjustments.
The IRS last year piloted a no-cost, easy-to-use Direct File system in 12 states.
It’s designed for taxpayers with relatively simple situations. The IRS plans to expand access this filing season to 12 more states including Pennsylvania, New Jersey, Connecticut, North Carolina and Oregon.
That sets up a potentially confusing situation where residents of roughly half the country will be eligible, while the other half won’t have access.
Keep an eye on the favorable corporate-profit trend
Baring a last-second collapse, the stock market will finish 2024 with its second consecutive annual gain of more than 20%.
Rising corporate profits or earnings have been the key catalyst, and the picture might improve in the coming year. If you’re an investor, that’s a favorable sign.
Earnings for stocks in the Standard & Poor’s 500 index likely will finish up 7.4% for the fourth quarter of 2024, compared to the fourth quarter of 2023. That’s according to Sheraz Mian, who as research director at Zacks Investment Research tracks what investment analysts forecast for the companies they follow. Earnings growth could accelerate to 10.9% in the first quarter of 2025, 12.5% in the second and 11.3% in the third, he said.
Tech stocks account for a big chunk of the profit gains, led by the “Magnificent 7” of Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla, and supported by trends including artificial intelligence, advanced computing and robotics.
Will 2025 witness a slowdown here? Not necessarily, as tech is “among the few sectors whose earnings outlook is steadily improving,” Mian said.
Give yourself a financial de-clutter check
Inflation was a big story this year and will continue to make headlines in 2025. If you’re feeling the pinch, it might be time to conduct a thorough review of your spending habits. Take a close look at the many monthly or quarterly expenses that you routinely pay without thinking much about them.
“Audit your spending habits,” suggested John Pharr, a certified public accountant in Florida. “So often we spend money mindlessly with little planning or on things that don’t serve us well.”
Auto, home and other types of insurance are a case in point. Review your coverage with an eye on making sure you have an appropriate amount of coverage and suitable deductibles. It might be time to shop around for better deals.
Other expenses that we sometimes view as “needs” really are “wants” that could be trimmed. Pharr cites subscriptions for streaming platforms, gym memberships, meal deliveries and cell phone and cable-TV services. “Sometimes rates keep rising and we just keep paying without checking into other options,” he said.
Reach the writer at russ.wiles@arizonarepublic.com.
