Lateran discussed on Money Girl's Quick and Dirty Tips for a Richer Life
They typically have lower overhead which means they get to pass the savings along to customers in the form of higher interest rates. But I will say that. Local community banks and credit unions can offer very competitive CD rates when they're trying to attract more deposits. So you really need to shop around to find the best rate now. Let's talk about something called. Cd Ladder Ring. This is a common strategy to maximize earnings by using multiple CDs. Lateran just like you know crawling up a ladder you buy CDs with different maturity dates an annual yields each one represents a rung on a CD quote Unquote Ladder. That goes from shorter terms of two longer terms. So imagine that you bought a hundred thousand dollar traditional five-year CD. Paying one point. Seven five percent now. Think about how bummed out you'd be if you put all that money into a five year CD you locked it up and in interest rates went up. They went up to two point seven five percent. So you're missing out on a whole percentage point on your money if that happened. Let's say the following year you'd be missing out on earning more interest because you locked up your money at the lower rate at one point seven five percent for five years and you can't make a withdrawal without paying a penalty lateran. You might choose to buy five CDs with that hundred thousand dollars instead of just one for instance you could buy a twenty thousand dollar one year. Cd A twenty thousand dollar two years CD. Twenty thousand dollar three years CD and so on up to a five year CD after one year when the very first CD reaches maturity you could use all or a portion of the money to purchase another five-year CD so as your shortest CD matures. You can use that money to buy a longer term. Cd that presumably has a higher interest rate so this technique of lathering protects you against missing out on higher returns if interest rates do rise. You're going to get more money and get greater flexibility at the same time as each. Cd matures you've got the option to renew it at the current rate or to use your money for something completely different so you can use a CD.