Valley Updates

Laddering Investments - Why it Matters

CD Laddering – What is it and how might it benefit you?


So, you want to invest your money into a CD but you are worried about the risks of tying up funds you may need access to or locking in a good rate for a long period only to see an even better one pop up a year later? These are common concerns that many savvy investors have, but the question is – what can you do about it?
Structure a CD ladder, it’s a great way to make the most of CDs and earn a higher overall return on your savings. CD laddering involves investing in a series of CD terms and setting each one to mature at a different time, which gives you periodic access to your money while the rest of it keeps earning interest, giving you the option to keep the money or roll it into another CD term and extend the ladder.
When you build a CD ladder, you should take into account the following factors:


• Maturity dates
• Interest rates
• Investment Amounts
 

Building a CD ladder is straightforward. Follow this CD ladder example that illustrates a $50,000 investment for a five-year ladder:
Open five CDs with $10,000 each — and make sure the accounts’ ascending maturities are 12 months apart. This way, you’ll have access to some of your money every 12 months as your CDs come to term — and you’ll have the interest-earning power of the longer-term CDs.


When your CD matures, you can take your money out or renew the CD with recent rates to keep your ladder going. Once all the original CDs have been renewed, the ladder works automatically.


By using this laddering technique, you are avoiding the two downsides usually associated with CDs: the interest rate risk and their low liquidity. In a rising rate environment, you don’t have to fear being locked into an inferior rate if something better comes along, as you will always have funds ready to invest. Plus, there will always be cash available to you should you need it.


The last point is important: Although interest rates on deposit accounts — including CDs and high yield savings accounts — are currently low, those interest rates might go up soon. If one CD matures during a time when your bank is increasing interest rates, you can put your earnings from that CD into a new CD with the highest interest rate.


To begin taking advantage of this strategy, open a new certificate with Pioneer Valley Credit Union! There are many options in terms of maturity dates and interest rates, including our current specials.


Pioneer Valley Credit Union has terms that can create a CD ladder that will accomplish your investment needs. For more info and to take advantage of these and other great rates visit Rates


Not a member yet? No problem! You can register right through the website, just click Become a Member to get started! These rate specials won’t last – sign up today!!