How Bank CDs May Fit into Your Retirement Portfolio

Simplifying Retirement

September 2012

People typically spend years saving up for retirement. And it's only natural they would want to keep those assets safe. And as long as security is a priority, bank CDs can play a key part in a person's retirement portfolio.

Many retirees want to have a varied, balanced retirement portfolio that includes not only stocks or bonds, but also some form of cash - another measure of security and stability.

"CDs can play a good role with that," Frank Boucher, owner of Boucher Financial Planning Services in Reston, Virginia, said in a recent Ally Bank interview.

"Many financial planners - and I'm one of them - believe that retirees should have at least a couple of years' worth of stable value assets to cover living expenses. Then, in the event that we have a big [stock] market downturn or something like that, they are not forced to sell securities at reduced prices.

"It gives you more time to do planning, so that you don't wake up one morning and say, 'Oh my gosh, I have to sell stocks in order to pay the rent.'"

The Obvious Advantages of Bank CDs

Bank CDs typically have a higher interest rate than savings accounts. At the same time, they offer simplicity and predictability: You know the rate you are getting and the amount you will have when the bank CD reaches maturity. Moreover, when you choose an FDIC-member bank, they're included in your Federal Deposit Insurance Corp. (FDIC) coverage up to the maximum allowed by law, which reinforces their low risk.

All in all, bank CDs provide a simple way to maintain retirement cash and some peace of mind. There are also some strategies that can make it easier to get good bank CD earnings while building flexibility into a portfolio.

Building Flexibility into Retirement Savings with Bank CDs.

One way to use bank CDs in retirement is to set up a series of CDs with different maturity dates, in a strategy known as a "ladder." The approach lets you create a regular cash flow or move money into new CDs if interest rates go up. Ladders can be useful in several savings strategies:

  • It can help you prepare for major expenses that you know are going to be part of your financial future, like a down payment on a house, or a child's education.
  • Or for retirement, you can use CDs as the cash foundation of a life-after-work long-term portfolio.
  • You can use CDs as a place to store money for smaller expenses like non-urgent home maintenance and repairs, or even property taxes.

In addition, you may also consider bank CDs such as the Ally Bank Raise Your Rate CD, which gives you the option to increase your interest rate once on a two-year Raise Your Rate CD or twice on a four-year Raise Your Rate CD if our rates on these CDs rise during the life of your CD. That way, you're not sacrificing the potential of a higher APY in exchange for the security of a longer-term CD.

But Not All CDs are Bank CDs

When it comes to a retirement portfolio, reduced risk is one of the key benefits of having bank CDs. However, the risk level may not be the same for all the CDs that are now on the market.

"Not all CDs are issued by banks," Chad O'Brien, a Certified Financial Planner® with Lassus Wherley, a financial management firm in New Providence, New Jersey, recently told Ally Bank. He explained that there are a lot of brokers now offering CDs that aren't included in your FDIC-member bank insurance coverage. As a result, he points out, it's probably a good idea to make sure the CD issuer is an FDIC-member bank.

To help get your CD savings strategy launched in a healthy manner, the Ally Bank Ten Day Best Rate Guarantee for CDs gives you the best rate we offer for your CD term during the first 10 days starting with your open date. All you have to do is make your deposit within that time. If you do not make your deposit within 10 days, your rate will be the rate on the day you fund and at the time of the funds are deposited to your account.

Learn more at or call live customer care anytime, 24/7 at 877-247-ALLY (2559).

Related articles: