Get the Facts Before Changing Your CD Strategies

Should I Change My CD Strategy in a Rebounding Economy?

September 2012

Certificates of deposit (CDs), can be one of the "basic building blocks" of someone's finances, according to Wayne Blanchard, a certified financial planner in Orlando, Florida, and a member of the Garrett Planning Network, who recently spoke with Ally Bank.

A CD is valuable in a savings plan "because you can't spend [the funds] easily," he said. With a savings account, Blanchard says, people may deposit and withdraw money more frequently. With a CD, if they have to pay a penalty to get it out, they may not touch it unless it's an emergency.

CDs are a useful savings tool for short-term and long-term financial planning and can be especially effective "if there are short- to medium-term needs for cash outside of the portfolio," said Ted George, president of George Financial Advisors in Scott's Valley, California, to an interviewer with Ally Bank.

"It could be college tuition, a down payment for a house, or part of your emergency fund," he suggested. "Instead of putting the item on a credit card, you're actually saving for it ahead of time."

If the timing of the short-term need is clear, CDs can be purchased to fit those time frames with considerable precision. Your funds will be available when you need them.

For long-term financial planning needs, George said, CDs are often appropriate for the cash portion of the portfolio. To avoid missing out on possible rising interest rates, choose to "ladder" your CDs, which spreads funds across several CDs, staggering their maturity dates to cover a given time period, such as five or 10 years.

"If it's a five-year ladder, each year a CD might come due," George said. "So every year, one-fifth of your money may be deposited with a new interest rate. That strategy gives you some protection from missing out on greater profits from interest-rate increases." Or consider the Ally Raise Your Rate CD, which allows you to start with a great rate, plus have the option to increase your rate once over the 2-Year term or twice over the 4-Year term if Ally Bank raises the rate it pays on these CDs during your term.

Either way, Ally makes it easy to make CDs a part of your overall financial plans. Learn more at Allybank.com or call live, 24/7 customer service at 877-247-ALLY (2559) today.

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