Historically speaking, October has been a tumultuous month for the economy. This year will bring the 34th anniversary of Black Monday (October 19, 1987) and the 32nd anniversary of the Friday the 13th Mini Crash (1989). While the more recent financial crisis of 2008 played out over several months, much of the action – Lehman Brothers and WaMu bankruptcies, stock market crashes, global panic, bailouts, etc. – all took place during the last half of September and throughout October. We won’t get into the reasons behind these crises, but each had one common result – investors went scrambling for safety.
From Crash to Cash
Looking back to the Black Monday crash when the Dow Jones Industrial Average sank by 22.6%, many found that safety in the form of Certificates of Deposit. Investors withdrew their exposed investments and transferred their money into CDs. With guaranteed interest rates and FDIC backing, CDs were a widely used means of protecting one’s money from market volatility; a fact that remains true today. The return on CDs today is nowhere near what it was 30 years ago. However, things are slowly improving thanks to the recent federal interest rate hikes.
However, due to their low rate of return, CDs, do not hedge well against inflation. At least not when compared to other products, like certain annuities. This is especially true with long-term CDs that many consumers automatically renew out of habit. As a result, consumers may be losing real-world value that could be parlayed into other, more advantaged solutions.
CDs and COVID-19
The COVID-19 pandemic saw CD rates drop to near all-time lows. At the onset of the pandemic (March 2020), the Federal Reserve lowered the target range for the federal funds rate to 0 – 0.25%. This was done to stimulate economic growth but caused financial institutions to lower interest rates on CDs and other accounts. CD rates have remained low since.
This makes a good argument in favor of replacement over renewal. In these times of uncertainty, your clients’ assets and retirement savings need as much protection as possible. The top-of-mind awareness created by CD Replacement Month is a great opportunity for producers to start the conversation.
To help get the ball rolling, IAMS is now offering our 2021 CD Replacement Kit. The kit includes a wealth of marketing materials:
- Taxable Equivalent Yield Chart
- CD vs. Annuity Comparison Chart
- Split Annuity Comparison Chart
- CD vs. FIA Sales Strategy
- CD Prospecting Letter
- Customizable Fact Finder
- Retirement Pitfalls Presentation
- Going Broke Safely Presentation
- IAMS Top Annuity Solutions Report
Click below to request the kit.