Short- and Long-Term Financial Planning With CDs

Reaching Your Financial Goals

November 2014

Certificates of deposit (CDs), can be one of the "basic building blocks" of a financial plan, according to Wayne Blanchard, a certified financial planner in Orlando, Florida, and a member of the Garrett Planning Network. A CD is valuable in a savings plan "because you can't spend [the funds] easily," he said. Blanchard points out that with a savings account, people may deposit and withdraw money frequently; but 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 useful savings tools 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, in an interview 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 a given 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 to ensure that 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 your financial portfolio. To avoid missing out on possible rising interest rates, you could choose to "ladder" your CDs, a strategy in which you spread 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 Bank Raise Your Rate CDs. With these CDs you start with a great rate and have the option of a one-time rate increase if our 2-Year CD rate goes up; you have the option to increase your rate twice (two times) if our 4-Year CD rate goes up.

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

Ally Bank, Member FDIC

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