A certificate of deposit (CD) is as close to a sure thing as you can get as an investor. And they’re very simple: invest your money for a set amount of time and earn a steady profit with a fixed APY* over the term of the CD.
Even with a savings option as simple as a CD, there are still strategies you can use to give yourself a high earning potential and leave yourself some wiggle room in case you:
- Anticipate needing some of your money before a long-term CD matures
- You want more flexibility in case rates change.
Three savings strategies
To get this kind of flexibility along with steady growth, there are three primary strategies you can look to when investing in CDs. These include a CD ladder, a CD barbell and a CD target.
The CD ladder
A CD ladder is a strategy that includes splitting your investment between multiple CDs, each with a different term. Then you’ll have CDs maturing periodically and you can choose whether or not you want to reinvest your money in another CD at that time.
For example, if you have $7,500 to invest, you could create a CD ladder by investing $2,500 in threeCDs, with one maturing every three months.
- 9-month CD
- 12-month CD
- 15-month CD
In a CD ladder, you will invest in multiple CDs with varying terms. The goal is to have CDs maturing at different times on a regular basis.
As each of those matures, you can decide to withdraw your investment, or reinvest it in a longer-term CD with a higher rate to maximize your earnings. If you do reinvest in long-term CDs, each with the same terms, those will also mature every three months.
The CD barbell
A CD barbell includes splitting your investment in two: one long-term CD and one short-term CD. If rates have gone up by the time the short-term CD matures, you can reinvest it in a long-term CD with the higher rate. Otherwise, you may keep the money or reinvest it in another short-term CD until rates do go up.
In a CD barbell, you split your investment between a short-term and long-term CD, with nothing in the middle. The goal is to balance short-term flexibility with long-term growth.
The key here is to balance long-term growth and high interest rates with short-term flexibility and access to your funds sooner.
This approach could also work if you have long-term and short-term goals. The short-term CD will mature much faster and you will have access to withdraw your money much sooner. Then the long-term CD can help you meet a different savings goal further down the road.
The CD target
With a CD target, you invest in multiple CDs at different intervals, so they all mature around the same time. This strategy allows you to see if rates go up before you invest all your money or invest more as you continue to save. A CD target could also help you save towards a specific goal, like a down payment on a home, or a wedding.
For example, you could start with $5,000 in a 30-month CD. A year later, you can invest another $3,000 in an 18-month CD. Six months later, you invest another $2,000 in a 12-month CD. After 30 months, all three CDs mature at the same time.
In a CD target, you open multiple CDs at different times with the goal of having them mature on a single target date.
This gives you an opportunity to build your earnings, but also leaves flexibility to keep money if you end up needing it.
Choose a strategy that works for you
Investing your money in a CD is a simple way to grow your savings. But a little creativity can help you create additional flexibility while keeping your earning potential high.
If you’re ready to start exploring your options, we have a variety of CD terms with great rates to fit your savings approach.
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