Full Article: CBS News – Which CD strategies are best for long-term savers? What the experts say
For long-term savers aiming to maximize returns with certificates of deposit (CDs), experts recommend strategies such as CD laddering, barbell, and bullet approaches. CD laddering involves allocating investments across multiple CDs with varying maturities, providing regular access to funds and mitigating interest rate risks. The barbell strategy combines short-term and long-term CDs, balancing liquidity with higher yields. The bullet approach entails purchasing CDs that all mature simultaneously, aligning with specific financial goals. Given the current economic climate, locking in favorable rates with long-term CDs can be advantageous. However, savers should align their CD choices with individual financial objectives and timelines to maximize benefits.
Here are five key takeaways from the article:
1. CD Laddering Strategy: This involves dividing your investment across multiple CDs with varying maturities (e.g., one, two, three, four, and five years). As each CD matures, you can reinvest into a new long-term CD, ensuring regular access to funds and the ability to capitalize on changing interest rates.cbsnews.com
2. CD Barbell Strategy: In this approach, you allocate funds between short-term and long-term CDs. For example, investing equal amounts in a 3-month CD and a 48-month CD balances liquidity with the opportunity to lock in higher long-term rates.cbsnews.com
3. CD Bullet Strategy: This method involves purchasing multiple CDs that all mature around the same time, aligning with a specific financial goal. It’s beneficial for savers anticipating significant expenses or those expecting interest rates to rise, allowing for reinvestment at potentially higher rates upon maturity.cbsnews.com
4. Current Economic Climate Considerations: With inflation on the rise and potential interest rate cuts on hold, locking in favorable rates with long-term CDs can be advantageous. However, it’s essential to assess your financial goals and liquidity needs before committing to longer terms.
5. Aligning CD Choices with Financial Objectives: Selecting the appropriate CD strategy should be based on individual financial goals, timelines, and expectations about future interest rate movements. Consulting with a financial advisor can provide personalized guidance tailored to your specific situation.