CD rates are likely to rise as the shutdown plays out

Interest rates are made of up three components: opportunity cost, inflation, and default risk. US treasury rates are considered to be free of default risk, so they consist of nothing more than opportunity cost and inflation. Federally insured bank CD rates are close to treasury rates.

Now, the US government could always avoid default by printing money or dropping bombs on people. That seems less preferable than allowing default, which is a bad alternative, too. However, sometimes it is necessary to call the bluff on people who are being insane.

Politics aside, know that a default will make interest rates rise. And when that happens, I’ll go to the bank and put money into a CD, because sooner or later, sanity will prevail.

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I teach and write about finance. I’m the author of four books in Wiley’s …For Dummies series, a fintech content expert, and an avid traveler. Among other things.

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