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It’s a smart tactic to employ.
Key Point
- You can potentially earn much more interest on a CD than on a regular savings account.
- The danger with CDs is that you have to lock your money for a preset period of time.
- CD Ladder Rings allow you to access your money at various intervals while enjoying the benefits of CDs.
Not so long ago, there was a time when investing in CDs paid little dividend. reason? The CD rate was just awful. And given restrictions like you can’t touch your money without risking a penalty, it makes more sense to keep extra cash in a regular savings account.
But these days, CDs are being paid more generously. The same goes for savings accounts. You can also get very high interest rates with little risk by putting money in CDs.
After all, as long as your CD deposit doesn’t exceed $250,000 at the FDIC insurance bank, you’re guaranteed to get at least $250,000 when your CD comes due. When you invest money in a brokerage account, you may lose some of it if market conditions are not favorable, or if the value of the particular asset you choose happens to drop.
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However, one drawback of putting money in a CD is that it binds the CD for a preset period of time. However, one strategy alleviates this problem.
have regular access to cash
Putting all your spare cash on one CD isn’t really the best option. What if you invested $20,000 in a one-year CD, but need the money six months later? (each bank ultimately evaluates its own penalty, but generally that’s what you’re looking at). so).
So a better approach to preserving CDs is to build the CD ladder yourself. A CD Ladder allows you to spread your funds across multiple CDs with different maturity dates. That way, some of the cash will be released at different times.
So let’s say you invest $20,000 in CDs. Instead of opening a single CD, for $5,000 he opens a year of CDs. 3 months later another $5,000 he can open a year CD and 3 months after that yet another CD. So what you’re doing is giving you access to a chunk of money once a quarter.
Of course, this is just an example. You can also space the CDs so that they mature every 6 months instead of every 3 months. But the point is not to put all your cash in a single CD with a single maturity date.
take that flexibility
These days, throwing money at a CD is a pretty good bet. But the last thing you want is the stress of not having access to money when you need it.
Loading the CDs on the ladder takes that worry away and frees up some cash every few months. That way, you’ll feel more comfortable with the idea of tying your money to her CD.
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