When it comes to building a steady stream of interest income over time, bank certificates of deposit (CDs) and a laddered CD strategy can be a good option. When you open a CD, you agree that you will not withdraw the funds until the maturity date, which varies from a few months to several years after you open the account, depending on the term you choose. You can close a CD before the term ends, but you typically will pay an early withdrawal penalty for doing so. Generally the longer the CD term, the higher the interest rate you earn.
How a CD Laddering Strategy Works
A CD ladder can be a useful strategy as part of your overall CD portfolio. CD laddering diversifies your money across CDs with varying maturity dates. For example, you might put 20 percent of your funds in five different CDs, each of which would have a different term length. If you chose CDs with term lengths of 12 months, two years, three years, four years and five years, for example, once the 12-month CD matured, you could then renew it in a new five-year CD. Following this process every year would result in a CD maturing every year, allowing you to take advantage of potentially higher long-term rates.
This is just one example—you can set up your own CD laddering system to meet your needs. Ally Bank is here to help you make smart financial moves with a wide range of products and services and interest rates among the most competitive in the country according to Bankrate.com.
Explore your options at Allybank.com or call live, 24/7 customer care at 877-247-ALLY (2559).
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