Using CDs for Long-Term Financial Planning

Plan for Your Financial Security with CDs in Mind

September 2012

In addition to bolstering retirees' long-term financial security, certificates of deposit (CDs) can also be used to meet other financial goals in a variety of situations.

In essence, they can provide a secure place to "park" money that is earmarked for a specific purpose at a specific time—especially when you will be using the money relatively soon, and you need to avoid the short-term fluctuations of the stock market. This is why many experts see CDs as the perfect low-risk retirement savings product.

Similarly, CDs often make sense for funds that have been put aside for events such as a planned wedding, a large vacation that is on the horizon, or an impending home purchase.

For example, if you have a high school junior or senior, you may want to move a significant portion of their college savings out of mutual funds and into a CD. We recently talked to Carl Friedrich, managing principal of Friedrich Wealth Management in Syosset, New York about that subject. "With college," says Friedrich, "you know when you're going to need the money you're going to be able to nail it to the year. So I think college saving is very conducive to CD investing."

They provide a safe haven, and you know the money will be there when the time comes. Some people also use them to impose a measure of self-discipline.

Erin Baehr, president of Baehr Family Financial in Stroudsburg, Pennsylvania, recently told Ally about a client of hers who had a lump sum of money he wanted to use to pay next year's state property taxes. "He wants to put that money away somewhere where he really can't get to it unless someone becomes sick or there's some other extreme circumstance."

For this client, she says, a CD has the benefit of putting those designated savings "out of sight, out of mind" until they are needed.

The bottom line: "if you're starting from, 'I know when I need the money and I can't lose a dime', right now CDs keep coming out on top," says Carl Friedrich.

Ally provides CDs with a range of benefits. Find out which one works the best for both your savings goals and your long-term financial planning.

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