One of the key benefits of a traditional bank certificate of deposit (CD) is that in general, it offers a fixed rate that won't fluctuate over the life of the CD. In other words, you'll almost always know exactly what you will get when the CD matures, and you can plan accordingly.
While the rate for your individual CD won't fluctuate, bank CD rates in general almost certainly will as the financial marketplace changes. As a result, you may worry that locking yourself into a three-year CD, for example, will cause you to miss out if overall market rates increase during that time.
That risk may not be as great as it seems, for a couple of reasons. For one, bank CD rates for longer-term CDs tend to be higher than shorter-term rates. Those higher bank CD rates might offset some of the market-rate increases down the road, and they should be factored into your calculations. For another, there are ways to mitigate that risk and make sure your CD strategy is working for you.
One strategy is choosing what’s known as a "bump-up" CD, which lets you increase your rate during the life of your CD. With the Ally Bank Raise Your Rate CDs, you have the option of a one-time rate increase if our Ally Bank 2-Year CD rate goes up; you have the option to increase your rate twice (two times) if our Ally Bank 4-Year CD rate goes up.
Another approach known as "laddering" also can help you keep up with changing rates. A CD ladder is a system that 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.
Ally Bank offers a variety of CDs to help you reach your savings goals, and all of our CDs are backed by the Ally Ten Day Best Rate Guarantee. With the Ally Ten Day Best Rate Guarantee, when you fund your CD within 10 days of your open date, you'll get the best rate we offer for your term and balance tier if our rate goes up within that time. You can open and fund a CD with any amount.
Learn more at Allybank.com or call live, 24/7 customer care at 877-247-ALLY (2559) today.