Certificate Of Deposit Account Strategies

By: EconomyWatch Content Team   Date: 8 March 2010

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To make a certificate of deposit account work for you, it is important to be a savvy investor.  No matter the amount of money being deposited, the goal is to make key decisions that will increase the return on your investment.  One strategy that works amazingly well is to invest some of your money in a certificate of deposit account, which offers more stability than investing in stocks, bonds, and money market accounts that can fluctuate.

Another smart strategy for a certificate of deposit account is to select options that would produce staggering income or return on investment.  One way to accomplish this is with laddering CDs.  Since interest rates increase and decrease as a regular part of the financial market, laddering CDs could reduce risk.  For instance, if current interest rates were low or medium but not increasing for an extended amount of time, laddering CDs would help.  Simply put, these certificate of deposit account options involves owning several CDs but with different maturing dates.

Because of this, a certificate of deposit account such as this provides liquidity.  Although not guaranteed, an unwritten rule is that the longer a CD is locked in the higher the interest rate offered.  Therefore, choosing laddering CDs with varying terms is the key to success.  You could go with a laddering certificate account with a six-month term, another one with a one-year term, another with a three-year term, and perhaps one with a five-year term.  As each matures, you would have the option of enjoying the return on investment or roll the money into another laddering CD.

Now, if you decide to use the laddering CD strategy, this too needs to be played out to your benefit.  For this, always make sure you choose the longer term certificate of deposit account for the highest investment.  As an example, your six-month and one-year accounts could have smaller investments, perhaps $1,000 to $3,000.  Then for the three-year term, increase the investment amount.  However, for the five-year term, you want to invest the most you can.  Since this certificate of deposit account will mature the latest, the more money the more return.

Another great strategy for a certificate of deposit account is to choose the issuer of the CD carefully.  For one thing, we suggest you start with the bank where you normally keep a checking and savings account.  Obviously, this bank wants to do all it can to provide you with the best CD, highest interest, and most profitable terms possible.  In addition to your own bank, you should also compare different online options for a certificate of deposit account.  Often, internet banks pay higher interest than rates offered by a brick and mortar bank.

Finally, you want to learn everything you can about any certificate of deposit account.  In addition to understanding the type of CD interested in, rates, and terms, you also need to learn about potential penalties, as well as what the current market is doing.  Knowledge is power and power gives you control.  Therefore, the more you can learn - the better choices you will make when locking into a certificate of deposit account.
 


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