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Client Conversations: Are CDs as Safe as You Think?

February 2019

The so-called safety of CDs could actually introduce far more risk than you anticipate, especially if your CDs automatically roll over.

Client Conversations gives financial advisors an easy way to communicate with clients on topics influencing financial markets; it highlights common investor behaviors and offers ways to address the challenges investors face. Share this article with your clients, and remember to follow your firm's policies that govern sharing content with clients and prospects.

It took less than 10 years for compact discs to eclipse the sales of both vinyl albums and cassette tapes. Today, with streaming services and music on our phones, CD players aren’t standard in every new car, and most stores no longer sell CDs. This has left many music lovers with the question: What will I do with all my old CDs?

This is also a question many investors should ask themselves. Unlike their musical counterparts, financial CDs—certificates of deposit—are still a popular short-term savings and income-generating tool since they’re low risk and FDIC insured up to $250,000. They’re not susceptible to market swings, so their predictable nature has kept them in style.

But in exchange for their minimal risk, CDs offer low yields (FIGURE 1), especially in today’s historically low interest-rate environment. Their so-called safety could actually introduce far more risk than investors anticipate, especially if the funds in maturing CDs are set to automatically roll over into another CD. 

Figure 1:

Average National CD Rates
6 month 0.68%
1 year 1.29%
5 year 2.02%

Source: Bloomberg as of 12/31/18


Time in a Bottle

Your time horizon is one of the most important things to consider when making any financial decision, but it’s especially relevant when it comes to CDs. 

For short-term savers, CDs may be a good fit. If you’ve saved money and know you’ll spend it in the next year or so, it could make sense to park it in a CD—where you can’t spend it on something else—and earn a little interest in the meantime. 

But if you don’t think you’ll need to touch that money for several years, you could actually lose money by saving with CDs. Yes, you’ll get your principal back, plus the promised interest, but as the following charts illustrate, you could invest differently to potentially earn more—even while drawing income.

In October 2007, before the financial crisis, CDs and bonds paid attractive income to investors. But that’s no longer the case. Here’s how low interest rates have impacted the income from CDs, bonds, and stocks in the last decade.

Based on a 4% coupon and assumes the bond is held until maturity and that the investor was able to purchase another bond with the same coupon upon maturity. US Treasury Bond interest rates and principal fluctuate and results may differ from the example shown. 

Data sources: Thomson Reuters and Hartford Funds, 1/19. 

Hypothetical example and the results for other time periods could differ substantially from that shown above. The CD and Bond illustrations assume no additional contributions are made after the initial investment. The equity illustration uses periods of rising equity prices and assumes the continued reinvestment of dividends and capital gains. Mutual funds are subject to risk and you could lose money. Taxes and transaction costs were not taken into account. If they were, the performance shown would have been lower. There are other material differences between the products which must be considered prior to investing.

Past performance is not a guarantee of future results. The performance shown above is index performance and is not representative of any Hartford fund’s performance. Indices are unmanaged and not available for direct investment. For illustrative purposes only.


You Oughta Know

Missed growth isn’t the only way CDs can cost long-term investors. They’re also susceptible to a double whammy of taxes and inflation.

Even though rates are rising slowly, banks still simply can’t offer high interest rates to consumers today. Then, the interest earned from CDs is taxable, so Uncle Sam keeps a portion of that already measly return. And because CDs hold your money for a set length of time—often enforced with a penalty for early withdrawals—it means your investment may be helpless against inflation.

At the end of the day, it’s not how much an investment makes, but what you keep, that really matters. And when all is said and done, the real return from CDs has been negative for the last several years.


The Real Return of CDs—You (Don’t) Get What You Give

A takeaway, then, is that while volatility is difficult to endure, it can present opportunities for long-term investors. When the broad sentiment is fear and others are selling, it may be time to be contrarian: consider it an opportunity to not only stay invested, but to buy while prices are depressed.

CDs are insured by the FDIC, offer a fixed rate of return, and are generally designed for short-term savings needs. The principal value and investment return of investment securities (including mutual funds) are subject to risk, will fluctuate with changes in market conditions, are generally considered long-term investments, and are not suitable for all investors. Data source: Bloomberg, Factset, and Hartford Funds 1/19. 

In Other Words

To sum it up, since they’re easy and convenient, CDs could still be a good short-term savings tool for you. But ask yourself what price you’re willing to pay for convenience. 

Before you sign up for a new CD or automatically roll over an existing one, take a minute to step back and consider your time horizon and financial goals. Is this the most appropriate use of your money to reach those goals? Or would stocks, bonds, or a combination of both provide income while also growing your wealth for the long term? 

Your financial advisor may not be a music guru, but he or she can help you decide whether or not a (financial) CD makes the most sense for your individual situation. Schedule time now—before your CDs mature—to discuss your options and see if there’s alternative that would make better use of your hard-earned money.


Hartford Balanced Income Fund has served investors well. 


Overall Morningstar Ratings (I-Share)5

★ ★ ★ ★ ★

Out of 463 products in the Allocation 30-50% Equity Category Based on Risk-Adjusted Returns as of 12/31/18



Performance (%)
% (as of 2/28/2019)
Average Annual Total Returns % (as of 2/28/2019)
Hartford Balanced Income  I 6.47 3.61 8.52 6.03 11.15 7.06
Benchmark 6.77 3.20 8.29 5.69 10.94 ---
Morningstar Allocation--30% to 50% Equity Category 5.90 1.49 6.23 3.27 7.25 ---
Performance (%)
% (as of 12/31/2018)
Average Annual Total Returns % (as of 12/31/2018)
Hartford Balanced Income  I -4.81 -4.81 5.83 5.01 9.28 6.62
Benchmark -5.03 -5.03 5.32 4.70 8.89 ---
Morningstar Allocation--30% to 50% Equity Category -4.97 -4.97 3.60 2.44 5.92 ---
SI = Since Inception. Fund Inception: 07/31/2006
Operating Expenses:   Net 0.65% |  Gross  0.65%
Share Class Inception: 2/26/10.
Class I-share performance prior to its inception date reflects Class A-share performance (excluding sales charges) and operating expenses. SI performance is calculated from 7/31/06.

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. 


If you’re looking to clean out your old CD collection, they’re #7 plastic, which is not recyclable. You can always sell or trade them in, and they can also be repurposed to keep them out of landfills. Here are some of the most popular ways to upcycle discs:

  1. Coasters 
  2. Mosaics on flower pots, mirrors, picture frames, tables, etc. 
  3. Wind chimes 
  4. Garden scarecrows 
  5. Purchase a pick-shaped punch and make your own guitar picks (also works on credit cards!)

Client Conversations gives financial advisors an easy way to communicate with clients on topics influencing financial markets; it highlights common investor behaviors and offers ways to address the challenges investors face. Share this article with your clients, and remember to follow your firm's policies that govern sharing content with clients and prospects.

1 S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks. 

2 CD rates are reported by the Citi Certificate Of Deposit 6 Month Index.

3 The tax rate used in the example is the highest marginal federal income tax rate based on $100,000 of taxable income for a married couple filing jointly according to The tax rate is not representative of the experience of every investor, and a lower tax rate would have a favorable effect on the real return.

4 Inflation rates are based on the Consumer Price Index (CPI), a measure of change in consumer prices as determined by the US Bureau of Labor Statistics.   

5 Class I-Share Star Ratings: 3-year 5 stars out of 463 products, 5-year 5 stars out of 367 products, and 10-year 5 stars out of 261 products for the period ended herein. Other share classes may have different ratings. Past performance is not a guarantee of future results. The Morningstar RatingTM for funds, or “star rating”, is calculated for funds and separate accounts with at least a 3-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. Star rating based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product’s monthly excess performance (without adjusting for any sales load, if applicable), placing more emphasis on downward variations and rewarding consistent performance. 5 stars are assigned to the top 10%, 4 stars to the next 22.5%, 3 stars to the next 35%, 2 stars to the next 22.5%, and 1 star to the bottom 10%. Overall Morningstar Rating is derived from a weighted average of the performance figures associated with its 3-, 5-, and 10-year (if applicable) Morningstar Rating metrics. For more information about the Morningstar Fund Ratings, including their methodology, please go to © 2019 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/ or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

6 The blended index consists of 45% Russell 1000 Value Index, 44% Bloomberg Barclays Corporate Index, 5.5% JP Morgan Emerging Markets Bond Index Plus, and 5.5% Bloomberg Barclays U.S. Corporate High-Yield Bond 2% Issuer Cap Index.


Important Risks: Investing involves risk, including the possible loss of principal. • Hartford Balanced Income Fund seeks to achieve its investment objective by allocating assets among different asset classes and/or specialist portfolio managers. There is no guarantee a fund will achieve its stated objective. Security prices fluctuate in value depending on general market and economic conditions and the prospects of individual companies. • Fixed income security risks include credit, liquidity, call, duration, and interest-rate risk. As interest rates rise, bond prices generally fall. • For dividend-paying stocks, dividends are not guaranteed and may decrease without notice. • Foreign investments may be more volatile and less liquid than U.S. investments and are subject to the risk of currency fluctuations and adverse political and economic developments. • Different investment styles may go in and out favor, which may cause a fund to underperform the broader stock market.

This information should not be considered investment advice or a recommendation to buy/sell any security.  In addition, it does not take into account the specific investment objectives, tax and financial condition of any specific person. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. This material and/or its contents are current at the time of writing and are subject to change without notice. This material may not be copied, photocopied or duplicated in any form or distributed in whole or in part, for any purpose, without the express written consent of Hartford Funds.

CCWP035   210286