While interest rates were at all-time lows, many people parked their money in savings or insured money market accounts. But now that interest rates are starting to rise, many members are wondering how they can maximize the return on their savings.
What about Certificates?
With the insured guarantees backed by the NCUA, certificates have long been popular with investors seeking a safe investment for their money. Certificates have also historically paid depositors a higher interest rate than regular savings or money market accounts. In exchange for the higher interest rates, depositors commit to leaving their funds invested for a certain period of time. The longer the commitment period, the higher the interest rate.
However, some people are a little reluctant to invest in certificates due to the time commitment required. They hesitate because they wonder what would happen if they needed the money. But these individuals also want to earn as much guaranteed interest as possible on their savings. Certificate Laddering is a proven approach to address these concerns.
Just like the rungs on a ladder that are evenly spaced apart, a member can divide their savings in different certificates with different commitment periods (a.k.a. maturity dates). For example, if you have $10,000 that you want to increase the rate of return you’re earning, but also do not want commit all your money a longer term, you could spread your savings over five certificates with different maturity dates as shown in the example below.
Maturity Savings Illustration
Date Balance Rate*
1 Year $2,000 0.35%
2 Year $2,000 1.20%
3 Year $2,000 1.40%
4 Year $2,000 1.65%
5 Year $2,000 2.15%
As each certificate matures, you would reinvest it in a 5 Year certificate. As you continued to make the reinvestments, in just a few years you would eventually have your savings earning the highest possible insured and guaranteed rate of return. Plus you would also have accessibility to some of your funds if you happen to need them.
Certificate Laddering may be the answer to help you achieve your savings goals. Call or stop by one of our offices to discuss how you can use this approach to earn a higher return.
*Rates are for illustration purposes only. Current rates may be lower or higher. For current rate information, visit our Dividend Rates, call us at (888) 777-9982, or stop in at one of our offices.