Tuesday, January 19, 2010

How to Maximize Savings with Certificate of Deposit Account Laddering

Certificate of Deposit or also known as CD is a promissory or savings certificate issued by a bank to an investor entitling the account holder to specified fixed interest rate. A certificate of deposit also bears a maturity date ranging from one month to five years and can usually be issued in any denomination. The interest rate of a CD is also higher than a regular savings account but restricts the holders from withdrawing the funds before the specified maturity date. Of course you can withdraw and close the CD but there is penalty charges involved in doing so. Certificate of deposits are insured by the FDIC which is a good thing.

Certificate of deposit account laddering is a strategy aimed to spread one’s investment across a variety of CD accounts with different maturities instead of just a single long-term CD in order to maximize savings. CD laddering allows the holder to take advantage of higher interest rate upon renewal and at the same time avoid the penalty charges of early termination in case of cash emergency.


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