Austin Stuhr, LPL Financial Advisor with Cornerstone Investments
When good times stop by, whether from a strong harvest, a profitable year in your business, or from careful budgeting, you almost always ask the question:
Should I pay down debt, invest, or save it for a rainy day?
Let’s talk about it.
Evaluate Your Debt
- High-interest debt (e.g., credit cards or certain short-term loans):
- Reducing or eliminating this debt is usually the wisest first move as it’s similar to securing a guaranteed return equal to the interest saved.
- Variable-rate debt (e.g., certain operating lines of credit):
- Because rates can rise, paying these off early can mitigate uncertainty and potential future expense.
- Fixed-rate debt (e.g., long-term farm loans, mortgages locked in at 3–4%):
- This debt offers stability. If safely earning potential (like a CD yield) surpasses your loan rate, investing may present a better opportunity.
Compare Borrowing Cost vs. Safe Earnings
A simple approach is to compare your loan’s interest cost with what you could safely earn:
- If your loan is costing 7% annually and the safest investment options like CDs yield only 4–4.5%, debt payoff is typically the smarter route.
- Conversely, if you’re paying just 3% on a mortgage but can earn 4–4.5% in a CD, investing may outpace debt reduction—though keep in mind the broader considerations (see below).
According to recent data, many Nebraska banks are offering CD rates between roughly 3.5% and 4% for 6–12-month terms. Some credit unions and online banks are slightly higher, reaching into the 4–4.5% range.
Understand Rate Fluctuation and Risk
Even “safe” instruments come with caveats:
- Reinvestment risk: If a CD is maturing today at 4%, the rate you can roll into next time may be lower or higher—it isn’t guaranteed.
- Inflation risk: A fixed-rate CD might not keep pace with inflation, diminishing real returns.
- Market risk: Investments in equities or mutual funds carry volatility, and capital gains tax applies when you sell at a profit.
Preserve Liquidity
Keeping an emergency cushion (in savings) protects against unexpected expenses and reduces reliance on costly debt when surprises arise.
Refinance?
Refinancing can make sense when rates drop significantly below your current loan. However, fees and closing costs must be carefully weighed to ensure the long-term savings eclipse the upfront expense.
Considering Market Investments
Investing in the stock market or mutual funds can be a way to grow your extra funds over time, but it comes with considerations distinct from CDs or paying down debt. Here’s a simple framework:
Potential Advantages:
- Higher long-term growth: Historically, equities have returned more than cash instruments over extended periods.
- Diversification: Market investments allow your money to work in different sectors, reducing dependence on a single source of income.
Potential Drawbacks:
- Market volatility: The value of investments can fluctuate, sometimes significantly, over short periods. This means you could see temporary losses.
- Capital gains taxation: If you sell investments at a profit, you may owe taxes on those gains, reducing your net return.
- No guaranteed return: Unlike paying off debt (where the “return” is the interest saved) or a CD (with a fixed yield), market returns are uncertain.
7. A Balanced Strategy
Combining multiple strategies might offer the best path:
- Keep enough liquid funds for emergencies.
- Prioritize paying down high-cost or variable-rate debt.
- If you’re in good standing with low-cost, fixed-rate loans, consider safely investing in CDs or a mix of CDs and conservative market funds to potentially grow your surplus.
Disclosure
“All examples of CD yields (such as “3.5–4%”) derive from general Nebraska rate ranges and do not reflect any specific institution’s products. Actual rates fluctuate over time and carry reinvestment risk; future yields may be lower. Certificates of deposit (CDs) are considered low-risk because they are typically FDIC-insured up to $250,000 per depositor, per bank, and you should ensure your bank is FDIC-insured. Investing in the markets involves volatility and capital gains taxation. SIPC (www.sipc.org) coverage protects brokerage accounts if the firm fails, but it does not protect against declines in market value. This post is for educational purposes only and does not constitute investment or tax advice. Consult a licensed advisor for tailored guidance.”
References
- Nebraska State Bank – “Rates: Certificates of Deposit” (Accessed September 2025).
- Nebraska Bank – “Certificates of Deposit (CDs)” (Accessed September 2025).
- MoneyRates.com – “Best CD Rates in Nebraska” (Accessed September 2025).
- FINRA – “Reinvestment Risk” Investor Education Materials.
- U.S. Bureau of Labor Statistics – Consumer Price Index Data (for understanding inflation impacts).
- Internal Revenue Service (IRS) – “Topic No. 409 Capital Gains and Losses.”
