Selasa, 17 Juni 2008

Get the Best CD Rates with a CD Ladder

by Rob W

CDs, short for Certificates of Deposit, are considered by many to be a very stable way to invest your money. Most certificates of deposit are offered by trustworthy banks, and in the United States most CDs are insured in accordance with FDIC requirements. Sounds great, yet, one of the less attractive qualities of CDs is that your money is committed to the bank for a set length of time, known as the "term". If an investor tries to withdraw their funds before the term is over, they can be required to pay substantial penalties for the early withdrawal. While one might be inclined to choose shorter term CDs, you will often see 4 year or 5 year CDs (sometimes longer) with the best CD rates. So how does one achieve the highest CD rates found in long-term CDs while retaining some flexibility in case you need to access your money sooner?

The answer to this question is to use a CD Ladder. The strategy behind the Laddering of Certificates of Deposit is, put in simple terms, simply dividing the portion of your portfolio slated for CDs among several CDs of differing term lengths.

As an example, if you had $45,000 to invest in certificates of deposit, and you wanted to be sure that you were never more than a year away from accessing at least $15,000, then you could buy three $15,000 CDs of different term lengths. In that case, you could by one CD with a one year term, one CD with a two year term, and one CD with a three year term.

Staggering the terms means that you are always within a year of grabbing a "rung" on the ladder. Therefore, when the one year term CD is expiring, if you are not yet ready to withdraw your funds you can instead buy a 3 year certificate of deposit and still have your CDs staggered in the same manner - because your 2 year CD would now only have one year left, and your 3 year CD would now only have two years left. You can reconsider your needs each time a certificate of deposit comes up for renewal. A further important aspect of CD Laddering is that it prevents all of your money from being locked into one interest rate, and instead allows you to reinvest each terminating CD at higher rates if the market rates are on the rise.

This laddering strategy can be adjusted to fit the specific amount of money that you want to invest and the length of time that you are comfortable being unable to access a portion of your money. So, if the stability of a certificate of deposit and the flexibility of staggered terms is appealing to you, be sure to check with your financial advisor to see if a CD Ladder is the right investment for you.

The best CD rates can be found at: Best CD Rates

Also, be sure to see the latest high interest Washington Mutual CD Rates

About the Author

Rob W blogs about CD rates at

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