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Thanks to streaming services and smartphones, CD players are no longer standard in new cars; some stores have even stopped selling CDs altogether. 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. 

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. 

Figure 1

Average National CD Rates
6 month 0.46%
1 year 0.88%
5 year 1.51%

Source: Bloomberg as of 6/30/22

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.

CDs and bonds used to pay stable, attractive income to investors. But interest rates and bond yields have remained low since the Global Financial Crisis. In this historically low-rate environment, finding income from CDs and bonds may be challenging. Meanwhile, the Hartford Balanced Income Fund, which invests in dividend-paying stocks and investment-grade bonds, has provided investors growth of capital and the ability to create a rising income stream.

Figure 1

Average National CD Rates
6 month 0.46%
1 year 0.88%
5 year 1.51%

Source: Bloomberg as of 6/30/22

CDs 12-Month CD

CDs offer a fixed rate of interest based on an agreed-upon investment period, and may have penalties for early withdrawals. The income they generate is taxable annually (except in retirement accounts) and fluctuates with interest rates. For example, the income on a $100,000 investment was only $390 in 2022 but was much higher in 2020 at $1,290. CDs are generally considered short-term investments and are insured by the FDIC up to $250,000.

Bonds 10-Year US Treasury Bond

If you bought a 10-year Treasury bond in 2011, the rate would have been about 1.88%. While this income stream is predictable, it doesn’t offer much protection against inflation, and bonds are not a diversified investment. Government bonds and Treasury bills are guaranteed by the US government and provide a stable source of income over a fixed number of years. Income is subject to federal tax except in retirement accounts. Bond prices may be marked up or down upon purchase or sale. Early redemption could result in losses.

Hartford Balanced Income Fund

Seeks to provide current income with growth of capital as a secondary objective by blending investment-grade bonds and dividend-paying stocks. The Fund can help investors engineer an income stream that factors in future inflation, though there is no guarantee the Fund will generate an income stream. Income distributions and systematic withdrawals from mutual funds are generally taxable. As with all mutual funds, the Fund involves risks and may not be appropriate for all investors. The principal value and investment return of the Fund will fluctuate with changes in market conditions. Mutual funds are generally considered long-term investments. During the period shown, the Fund’s principal value ranged from a low of $100,000 on 1/1/12 to a high of $145,272 on 12/31/21. 

Past performance does not guarantee future results. Investments in mutual funds are subject to operating expenses, which will lower performance. Examples are hypothetical and the results for other time periods could differ substantially from that shown.

Hypothetical examples and the results for other time periods could differ substantially from that shown above. The CD and bond illustrations assume that income distributions begin one year after the initial investment and are distributed every January per year, and no additional contributions are made after the initial investment. CD rate is based on the average 12-month CD rate at 1/1/12 and each January 1 thereafter; bonds are based on a 1.88% coupon rate of the 10-year Treasury Bond at 1/1/12 and assumes it is held until maturity. The growth of principal of the Hartford Balanced Income Fund depicted in the chart assumes the continued reinvestment of dividends and capital gains and is for illustrative purposes only. Source: Morningstar, Barclays Live, and Hartford Funds, 7/22.

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.

In the ultra-low rate environment in response to the COVID-19 pandemic, banks can’t offer high interest rates to consumers. 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

Year 12-Month CD APY1 Taxes2 Inflation3 Real Return After Taxes & Inflation
12/31/2017 0.80% 25% 2.10% -1.50%
12/31/2018 1.29% 22% 1.92% -0.91%
12/31/2019 1.14% 22% 2.26% -1.37%
12/31/2020 0.39% 24% 1.30% -1.00%
12/31/2021 0.28% 24% 7.12% -6.91%

Data Sources: Bloomberg, FactSet, and Hartford Funds, 2/22. 

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 professional 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.

Hartford Balanced Income Fund A Share Morningstar Ratings
(as of 7/31/2022)
Overall, 5 stars, 3-Year, 4 stars, 5-Year, 5 stars, and 10-Year, 5 stars, rated against 427, 427, 392 and 284 products, respectively. Morningstar RatingTM is calculated for products with at least a 3-year history, based on a risk-adjusted return measure (excluding any applicable sale charges) and accounts for variations in a product's monthly 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%. ETFs and mutual funds are considered a single population. The Overall 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 these ratings, including their methodology, please go to global.morningstar.com/managerdisclosures . Ratings for other share classes may vary and are subject to change monthly. Past performance is no guarantee of future performance.
©2022 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.

Allocation--30% to 50% Equity Category
Based on Risk-Adjusted Returns
(as of 7/31/2022)
(as of 7/31/2022)
Hartford Balanced Income A -7.41 -5.39 4.81 5.38 6.64 6.70
With 5.5% Max Sales Charge --- -10.59 2.85 4.20 6.04 6.32
Benchmark -10.08 -8.07 3.86 4.73 6.59 ---
Morningstar Allocation--30% to 50% Equity Category -9.70 -8.22 3.41 3.83 4.87 ---
(as of 6/30/2022)
(as of 6/30/2022)
Hartford Balanced Income A -11.45 -8.47 3.43 4.68 6.46 6.44
With 5.5% Max Sales Charge --- -13.50 1.50 3.50 5.86 6.06
Benchmark -14.33 -11.52 2.43 3.93 6.30 ---
Morningstar Allocation--30% to 50% Equity Category -13.33 -11.20 2.13 3.22 4.57 ---

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.

SI = Since Inception. Fund Inception: 07/31/2006

Operating Expenses: Net 0.85% | Gross 0.85%

*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!)


1 CD rates are proxied by BankRate.com’s 12-month CD national average.

2 Source: Taxpolicycenter.org. The chart uses the highest marginal federal income tax rate based on $100,000 of taxable income for a married couple filing jointly for each calendar year. The tax rate is not representative of the experience of every investor. A lower tax rate would have a favorable effect on the real return. 

3 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.  

Important Risks: Investing involves risk, including the possible loss of principal. Security prices fluctuate in value depending on general market and economic conditions and the prospects of individual companies. The Fund may allocate a portion of its assets to specialist portfolio managers, which may not work as intended. • 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. • Different investment styles may go in and out favor, which may cause the Fund to underperform the broader stock market. • 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, economic and regulatory developments.

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.

“Bloomberg®” and any Bloomberg Index are service marks of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the indices (collectively, “Bloomberg”) and have been licensed for use for certain purposes by Hartford Funds. Bloomberg is not affiliated with Hartford Funds, and Bloomberg does not approve, endorse, review, or recommend any Hartford Funds product. Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to Hartford Fund products.

CCWP035 2330481

The material on this site is for informational and educational purposes only. The material should not be considered tax or legal advice and is not to be relied on as a forecast. The material is also not a recommendation or advice regarding any particular security, strategy or product. Hartford Funds does not represent that any products or strategies discussed are appropriate for any particular investor so investors should seek their own professional advice before investing. Hartford Funds does not serve as a fiduciary. Content is current as of the publication date or date indicated, and may be superseded by subsequent market and economic conditions.

Investing involves risk, including the possible loss of principal. Investors should carefully consider a fund's investment objectives, risks, charges and expenses. This and other important information is contained in the mutual fund, or ETF summary prospectus and/or prospectus, which can be obtained from a financial professional and should be read carefully before investing.

Mutual funds are distributed by Hartford Funds Distributors, LLC (HFD), Member FINRA|SIPC. ETFs are distributed by ALPS Distributors, Inc. (ALPS). Advisory services may be provided by Hartford Funds Management Company, LLC (HFMC) or its wholly owned subsidiary, Lattice Strategies LLC (Lattice). Certain funds are sub-advised by Wellington Management Company LLP and/or Schroder Investment Management North America Inc (SIMNA). Schroder Investment Management North America Ltd. (SIMNA Ltd) serves as a secondary sub-adviser to certain funds. HFMC, Lattice, Wellington Management, SIMNA, and SIMNA Ltd. are all SEC registered investment advisers. Hartford Funds refers to HFD, Lattice, and HFMC, which are not affiliated with any sub-adviser or ALPS. The funds and other products referred to on this Site may be offered and sold only to persons in the United States and its territories.

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