Q: I’d like to open a long-term savings account, and I’m reviewing my options. I’ve heard about something called a CD ladder; is it a good choice?
A: A CD ladder, known as a certificate ladder when opened at a credit union, is a savings tool that combines the security of share Certificates with the flexibility of staggered maturity dates. Let’s take a closer look at certificate ladders and why this may be an excellent choice for your funds. What is a Certificate ladder? Certificates of Deposit (CDs) have been a longtime, popular investment banking tool for individuals seeking a safe and stable place for their funds. Their credit union counterparts, share certificates, are the same type of product, so don’t let the terminology differences trouble you. They offer a fixed earnings rate over a specified period (term), and provide a reliable source of income. However, traditional certificates often lack flexibility since investors must commit their funds for the entire term. This is where certificate ladders come in. Certificate ladders operate on a simple principle: instead of investing in a single certificate with a fixed term, savers distribute their funds across multiple certificate accounts with different, staggered, maturity dates. For example, instead of investing $10,000 in a single 5-year certificate, a member may choose to allocate $2,000 to five different certificates, each with a maturity date of one year apart. This strategy creates a “ladder” of certificates, with one maturing each year. What are the advantages of Certificate ladders? There are several significant advantages of certificate ladders:
Despite its many advantages, certificate ladders are not a suitable choice for all investors. First, each certificate within the ladder has a fixed term. This means early withdrawal penalties may still apply if funds are accessed before a certificate’s maturity date. Additionally, the rates offered on certificate ladders may not be as high as those on riskier investments, like stocks or bonds. As a result, individuals with a higher risk tolerance, as well as those seeking significant growth, may prefer other investment options. Certificate ladders provide a compelling blend of flexibility, security and liquidity. Use this guide to make an informed decision about investing in a certificate ladder and give your money its best chance at growth.
0 Comments
Leave a Reply. |
Archives
January 2024
Categories
All
|