To a large extent, CD management might begin by determining a) what your goals are, and b) how long you can afford to put the money away.
"There are often [early] withdrawal penalties, so you need to know that you are not going to need to tap that money within the period that it is [deposited] for," Joseph Alfonso, principal of Aegis Financial Advisory in Santa Clara, California, recently told Ally Bank.
In general, certificates of deposit are used when you don't want to put your money at risk, and you also don't need to use it in the immediate future. For example:
- CDs may be used to provide a conservative offset to the higher-risk assets in your portfolio.
- Some people use CDs to hold part of their household emergency fund, with the equivalent of perhaps three months' expenses in regular savings and three months' worth in a six-month certificate of deposit.
- Because they generally provide a predictable return in a predetermined timeframe, CDs are especially useful when saving for a specific event, such as a vacation or a wedding.
If you are concerned about the possibility of missing out on rising interest rates, you might consider "bump-up" certificates of deposit, such as the Ally Bank Raise Your Rate Certificate of Deposit, which starts with a great rate, plus gives you the option to increase your rate once over the 2-year term or twice over the 4-year term.
Or, you might think about "laddering" as a way to guard against changing rates. For example, if you had $60,000 in savings, you could spread that amount evenly across four certificates of deposit with different maturity dates, giving you one-, two-, three- and four-year accounts (as an example). Then, when each comes due, you have the option to redeposit it at the new (and, perhaps, higher) rate.
Once certificates of deposit are in place, your job is more or less done. But there is one thing to keep an eye on: the maturity date. Often, maturing certificates of deposit are automatically renewed at the new prevailing interest rate if the depositor takes no action.
However, that "may not always be the best deal - it may not even be what you want to have happen, depending on your own needs" Jim Heitman, owner of Compass Financial Planning in Alta Loma, California, recently told Ally Bank. "So keep track of it on your own calendar, and when you get to a point where you are a couple of weeks away...start deciding what you are going to do with that money."
With the Ally Bank Raise Your Rate 2- and 4-Year CDs, you get a great rate, plus the ability to increase your rate once over the 2-year term or twice over the 4-year term if our rates on this CD go up for the term of your CD. Visit AllyBank.com or call live, 24/7 customer care at 877-247-ALLY today.