Have you tucked away all your money in a savings account? Want to know about safer and profitable ways to invest your money?
A savings account is a great way to invest the major chunk of your wealth. There are no risks or security issues. Plus, you get a 6-7 percent interest on your money each year. This is great if you have just started working and don’t have an emergency fund yet. Once you have your savings account and emergency fund ready, you can think about other low-risk investment options like CD(Certificate of deposit).
What is a CD?
CD is a certificate of deposit given to you, by the bank, for investing a certain amount of money for a fixed period. The bank pays you interest in using your money for a fixed period ranging from 3 months to 6 years. The more the duration of investment, the higher your interest rate will be. It is a lot higher in comparision to a savings account.
Once you invest a certain amount in a CD, you don’t have to worry about the interest rate fluctuation–like you have to in stock or mutual fund investments. A CD is FDIC insured. The interest rate is both high and fixed.
What is a CD ladder?
Let’s move onto the main topic of this post, a CD ladder. Instead of putting all your eggs in one basket, distributing them equally in several baskets is always a wise thing to do. Likewise, with a CD ladder, you can open several CDs and put a small amount in each of them. As they mature independently, you can expect a higher gross interest at the end of the tenure(of each CD).
You don’t have to buy all the CDs with the same tenure. For instance, you can buy five CDs with one CD expiring after the end of every year(Create a ladder of 5 steps: 1year CD, 2 year CD, and so on). This way, your money will get freed up after every year.
After the end of each term, you can put the freed up amount in the 5-
year CD. This way, at the end of 5 years, you will be getting a 5-year interest rate and also some amount freed up each year(in case you need it).
Why do I need a CD ladder?
You need a CD ladder to make sure your money is not locked out for a longer duration. Secondly, a thoughtfully crafted CD ladder also ensures a high-interest rate at the end of the term. All these benefits for zero-risk. The is no reason to not consider a CD ladder a money-making opportunity.
Furthermore, there are many factors that determine whether you need a CD ladder or not. Are you someone looking for a high return on investment whilst taking no risk? Do you hate investing in complex and vague investment methods? Do you want access to your money at regular intervals?
If the answer to all the above questions is yes, then you should buy multiple CDs in one of the top banks in the US. Marcus by Goldman Sachs and Barclays offer the highest interest rates.