Certificates of Deposit or CDs may seem like one of the last things on your mind these days, what with current economic headlines proclaiming doom and destruction, but cds are actually one of your only safe investing strategies in the current economic climate. CDs and other risk-free investment accounts are the best places you can secure your funds until prosperity returns as they are FDIC-insured (up to $100,000), and-depending on what type of cd you entertain-will always gain you some interest, however small. Here is a list and explanation of the best strategies to use with cds to maximize your funds.
First, of course, we must mention the simple cd, which will gain you some interest while retaining in full-as long as you do not withdraw any funds before maturity date-your original principal. You may be thinking, ‘what is the point? The interest rates are so low on everything now, your return will be anything but high yield.’ It may not be high yield return that you receive on your cd, but it is something in a time when most people are losing. Investing in a standard CD or simple cd is a risk-free way to ensure your money stays safe, no matter the economic climate.
For the investor that wants to stretch his/her finances out into a more professional investment plan, cd laddering is a favorite. It offers hardly any risk, but concentrates on a longer term plan. You purchase cd accounts from a short term (3-6 months) to mid term (1-2 years) to longer term (3-5 years). The longer the term-of course- offers you a higher cd interest rate and remains untouched, while the short term accounts are freed up within a couple months so that if you need it, you can wait until maturity and then pull it out. Otherwise, matured short term cds can be rolled over into the next rung in the ladder, while the other longer rungs are now closer to available, but with better interest.
The cd bullet strategy is also a good choice, especially if you are saving for something that has a long term deadline. You start with a set maturity date and apply that to a bunch of varying cd rate accounts. This way, you aren’t banking one lump sum on one low interest cd account. You open up a bunch of cds with set maturity dates, and collect both principal and interest at the maturity finish line.
The CD barbell strategy sounds intimidating but it is simply another investment strategy that divides up your money and doesn’t place all your financial hopes in one low interest basket. CD barbell strategy focuses on placing your finances in longer term, high yield CDs accounts as a focus, while still maintaining some liquid or attainable funds in short term cd accounts. This way, you are always earning on high yield accounts on larger cd principals; while keeping yourself safe with back up liquid funds should something happen.