Even when bank certificate of deposit (CD) interest rates are low, CDs can still play an important role in your financial portfolio—especially when there's high volatility in the stock and bond markets. "When funding a CD—or any financial vehicle—the most important question to ask yourself is what your goal is," says Chris Zeches, a Certified Financial Planner® with Zeches Wealth Management in Phoenix, Arizona. He adds that there are questions you should ask yourself, such as, "Do you consider this money part of your emergency savings? Is it to pay for an event in the near future?"
While it might make sense to put long-term investments in stocks and bonds, that's not a gamble you'd take with shorter-term funds, he explains. "Your money will be safe in [FDIC-member bank] CDs, and that's important. But in return for that safety, don't expect too much more. When there's a low-interest rate environment, bank CD interest rates are not going to make you wealthy, but again, that's not the point."The most important thing you can do is to read the fine print before opening any account. Make sure you know the penalty for early withdrawal and make sure your CD will be included in your FDIC (Federal Deposit Insurance Corporation) insurance.
Finally, consider constructing a CD ladder with varying bank CD interest rates and terms to get a better return. 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. The benefit, according to Zeches, is that, "You know you'll have money maturing periodically, which allows you to reassess. And while your money is very safe in CDs, you're still not putting all your eggs in one basket. A ladder is a really good way to maximize your return with very little opportunity risk."
Ally Bank CD interest rates are among the most competitive available in the country. We offer a wide range of CDs to meet your goals, including the Raise Your Rate CD. With the 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.
Learn more about how Ally Bank can help you reach your savings goals at Allybank.com or call live, 24/7 customer care at 877-247-ALLY (2559) today.