Tips for laddering CDs
When buying CDs, there's so much to consider — rates, penalties, brokerages, renewals. The following tips will help you navigate those choices.
CDs are available through national banks, community banks, credit unions, brokerage firms and financial advisers, but rates may vary a lot among them. Logan recommends checking rates locally and online before you buy. Once you become familiar with banks or credit unions that consistently offer good rates on CDs, she suggests you comparison shop within this group.
A brokerage can look for CD rates nationwide and offer other perks, as well. “With a brokerage firm, you can potentially ask for bids to sell your CD should you need cash before the CD matures,” says Nicolas Straut, an avid user of CDs. You may be able to avoid heavy penalties for early withdrawal, but there's no guarantee that your CD won't sell for less than it is worth.
Finally, make sure the CDs are opened with an insured institution so your investment is secure.
Consider penalty vs. no-penalty CDs
Most institutions charge a hefty penalty for withdrawing CDs early, thus reinforcing that you keep that money in your savings. However, there are some no-penalty CDs that pay lower interest but do not charge for early withdrawal. These can be especially helpful if you need money or if rates go up and you want to invest in a higher paying CD.
Stay on top of rates and maturity dates
Create calendar alerts for CD maturity dates so you can reinvest efficiently. Be flexible — if a six-month CD matures but pays a lower rate than it did previously, invest in a one-month CD until rates improve. Indeed, it pays to check rates regularly. You may even find that within the same bank, savings accounts sometimes pay higher interest than do shorter-term CDs such as three- and six-month CDs.