CD ladder made easy
Savings and investments are a vital aspect of one’s financial growth. It is imperative that an individual invests his money in the right scheme for reasons of profitable returns. There are innumerable methods available for precisely this reason. Savings account, money market account, certificates of deposit are some of the instruments that one can invest in with a guarantee of decent returns. Each investment vehicle has been devised to cater to a person’s individual needs and situation. For e.g. if a person wants high interest rates and is ready to set his money aside for a certain period of time then certificates of deposit would most probably fit the bill. Whatever the scheme one wishes to invest in, he must be familiar with the terms and conditions and carry out a thorough research on that scheme prior to commitment, the failure to do so could leave the client disappointed.
A certificate of deposit is an investment vehicle offered by banks and various other financial institutions where the investment is locked away for a fixed duration of time at a predetermined rate of interest. The duration and rates of interest vary for each bank. The trends of the stock market also have a bearing on the interest rates. One of the disadvantages of a traditional CD is that the investment cannot be liquidated or terminated prior to maturation. If one fails to abide by this protocol he could incur hefty fines or a percentage of his returns would be deducted.
What is a CD ladder?
Usually the traditional CD has long maturation periods. If the customer has the need for money from time to time or those with a large amount of liquid capital or maybe a person who has a low expenditure lifestyle can benefit from the ladder. The CD ladder is not a crime but is just a smart investment strategy. The basic principle is that investors own a number of CD’s of varying maturation periods at timed intervals. On maturation of the CD with the shortest duration the investor can invest his returns into a CD which has a maturation period similar to that of longest term CD that an individual owns .For e.g. consider you own CD’s at timed intervals of 6 months,1,2,3,4 years maturation periods. On the maturation of the 6 month CD one should reinvest part or the whole sum of the returns into the 4 year CD.This is a safe investment option and is FDIC approved.
