Achieve High CD Interest Rates & Use Your Money Too
A traditional savings account interest rate is not very high in comparison to other investment options available today. A certificate of deposit, or CD, is similar to a savings account with some advantages. CDs provide higher interest rates on your investment. The only potential drawback it that you cannot access the funds for a set period of time. However, the longer you invest you money, the higher the interest rate a bank will be willing to offer.
Anchorage Banking Rates compiles CD interest rates from a variety of financial institutions to help you find the perfect place to secure your funds. If you are concerned about locking your money into an account for an extended period of time, a solution known as laddering solves the issue.
Laddering allows you to take advantage of the higher interest rates associated with longer-term CDs while still maintaining some liquidity in your portfolio. By always having an account maturing in the near future, you can access funds when needed without incurring early withdrawal fees. The following is an example of how to ladder your CD portfolio:
Begin by investing $1,000 in a one-year CD. Then, continue investing increments of $1,000 into CDs of longer and longer terms (2-year, 3-year, etc.) until you have invested your last sum into a 5-year CD. The long-term CDs will collect higher interest rates as the shorter-term accounts mature.
When the first year-long CD has matured, re-invest the funds into another 5-year CD. This way, a CD will mature every year while you continue to take advantage of 5-year CD interest rates. This solves the issue of liquidity when it comes to long-term CDs.
