CD Investment Strategies

by Bella Palmer

CDs or Certificate of Deposits are low-risk investment. This investment basically requires you to lock your money at a bank or credit union for a certain set of period. It can be 6 months to 5 years or more. At the end of your term, you will receive your invested money along with the interest. Usually, banks or credit unions offer higher interest rates for deposit account than those for the traditional saving account. When your CD reaches its maturity date, you can withdraw your money or roll it over to another new CD. However, you are not allowed to cash your CD before the maturity. If you do early withdrawal, you will likely have to pay penalties.

When it comes to CDs, you have to apply investing strategies in order to gain more profits. Investing in one CD sounds dull and gives less interest. Here are three strategies you should consider if you want to have more profitable CDs:

1.    Laddering
This is the most common strategies used by CDs investors. Laddering means you should purchase several CDs with fixed interest rates but different in maturity date. For example, you buy one year, two years, and three years CDs. By the time the one year CD mature, you can re-invest it in three years CD, and so on. By doing the laddering, you can have CDs which mature on regular basis. This strategy is also beneficial for you since you can either re-invest your CD when the due comes or cash it out for unpredictable or emergency situation. Yet, you should re-invest it so that the ladder will prevail.

2.    Bullet
This strategy’s purpose is to buy CDs which have the same maturity date.  Say you purchase one year CD today, two years CD next year, and three years CD the following years. Yet, all your CDs are mature at the same time or aim at one certain time, that’s why it called as bullet. This kind of strategy is usually used to pay major cash outlay scheduled in the future.

3.    Barbell
When you want to use barbell strategy, you only purchase short-term and long-term CDs. The goal of this strategy is that you can lock in higher interest rates for the long-term CDs as well as having financial securities for the short-term CDs. This strategy works when you buy two short-term CDs, one year for instance, and two long-term CDs for three years CDs or more. The short-term CDs can be used to respond for emergency or either to be re-invested for higher yields. While you have this flexibility, you still have the interest payment from the long-term CDs.

This article is for information purposes only.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.

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