CD accounts are almost closer to mutual fund investments which can offer attractive returns. They are also known as one of the safest possible investment options available. But as everyone knows CD rates can grow with time and unfavorable market conditions can impact the rates as well. There are some strategies to adopt which can alleviate the risk of non moving CD rates.
Why one should adopt a strategy ?
Investing in only one CD account and waiting for two to three years is not at all a good choice. Being dependent on only one bank and its performance can be a risk. Hence it is required to distribute the investments among banks. Also the maturity periods must be properly planned to get the best out of CD rates. There are proven strategies that work well for most of the investors. Knowing this can help one to go a long way in making decent returns out of these accounts.
There several strategies to adopt while investing. The most prominent ones are bullet, barbell and ladder strategies.
In bullet strategy the account holder must distribute his investment across banks such that all of them mature at the same time. For example if he equally divides and invests in four different banks, all of the accounts should be signed for maturity around a same month. By this even if one of the banks fail to give you high returns, the presence of other banks could bring about the much needed return.
In barbell strategy some amount is distributed among banks for short periods while the remaining amount would be invested with a maturity period of around three years. This is a good strategy if current CD rates are promisingly high. By this you could enjoy the certain benefits of high current CD rates as well enjoy the high expected rates in future.
In ladder strategy amount is distributed among different banks for different maturity periods such that the amounts get matured at different times. This could ensure a regular flow of money.