Before you shop for a CD, there are two numbers you need to know:
Yikes, what’s compounding? Put simply, it’s how your investment gets bigger and bigger over time. For example, let’s say you invest $10,000 in a three-year CD earning 5% annually. In the first year, your $10,000 investment will earn $500. In the second year, 5% of the new total ($10,500) will be $525. In the third year, 5% of $11,025 will be about $551. That’s compounding.
Steps to take if a CD is an ideal investment for your cash:
Consider a ladder
One way to reduce a CD’s drawbacks is to use a technique called “laddering.” This strategy gives you regular access to part of your cash and protects you against rising interest rates.
Laddering is simple. Instead of investing one big chunk of cash in one CD, you divide your lump sum into equal parts and invest each in CDs of varying durations.
Here’s how it works: Let’s say you want to invest $15,000. You’d invest $5,000 in a 1-year CD, $5,000 in a 2-year CD and $5,000 in a three-year CD. Then, each time one of the three CDs matures, you’d either take the cash or re-invest it in another three-year CD to keep your ladder in place.
As you can see, laddering provides three cool benefits:
| Type | Today | Week Ago |
|---|---|---|
| 15 Year Fixed | 4.62% ![]() |
4.67% |
| 30 Year Fixed | 5.15% | 5.15% |
| 1 Year ARM | 3.48% ![]() |
3.51% |
| 5/1 Year ARM | 3.62% ![]() |
3.68% |
| Type | Today | Week Ago |
|---|---|---|
| Line of Credit | 4.89% ![]() |
4.88% |
| 10 Year Loan | 7.47% | 7.47% |
| 15 Year Loan | 7.61% ![]() |
7.60% |
| Type | Today | Week Ago |
|---|---|---|
| Interest Checking | 0.28% | 0.28% |
| Money Market/Savings | 0.38% | 0.38% |
| 12 Month CD | 1.13% ![]() |
1.15% |
| 60 Month IRA CD | 2.40% ![]() |
2.41% |
| Type | Today | Week Ago |
|---|---|---|
| Cash Back Cards | 12.66% ![]() |
12.68% |
| No Annual Fee Cards | 12.08% ![]() |
11.97% |
| Reward Cards | 12.75% ![]() |
12.61% |
| Small Business Cards | 11.01% ![]() |
10.94% |
| Student Cards | 13.77% ![]() |
13.49% |
| Platinum Cards | 12.26% ![]() |
12.11% |
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