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If you are like many Virginians and West Virginians, you are looking for new ways to build your financial future in a way that works for you. You may be looking to accounts such as high-yield savings accounts, money market accounts, or a CD (Certificate of Deposit).
For those saving long-term, CDs are popular products offered by banks and credit unions that offer fixed interest rates over specific, set timeframes. Since they are insured by FDIC up to $250,000, they are a risk-free way to save money.
CDs offer high interest rates—higher than both high-yield savings and money market accounts. They’re intended for short-term investments of between 3 and 24 months, though some run as long as 7 years.
However, CDs do have some limitations. They require a large initial deposit, and with few exceptions, money cannot be added to the CD during the term. Money can also not be withdrawn without a fee. Withdrawals prior to the end of the term, known as the maturity date, can be subject to penalties.
Many banks are now providing short-term CDs with attractive rates, but these tend to result in lower returns. If you are looking to take advantage of the high rates of long-term CDs while having regular access to a portion of your investment, then you should consider building what’s known as a “CD ladder.”
Understanding CD Ladders
A CD ladder involves spreading your money across multiple CDs of different term lengths and maturity dates. This allows you to take advantage of higher interest rates on longer-term CDs while still having access to some of your money at consistent, one-year intervals.
For example, If you have $5,000 to invest, you can split it into five $1,000 CDs with terms of 1, 2, 3, 4, and 5 years. When the first CD matures after a year, you can decide whether to reinvest the money into a 5-year CD or to use the money for another purpose. If you reinvest each of the first four CDs, the result will be five 5-year CDs, with one maturing every year.
What are some of the advantages of CD ladders? Well, for starters, you have yearly access to a portion of your funds, funds that would be untouchable without a penalty if invested in a single CD. If you’re worried about accessing your funds, this might make a CD ladder more attractive. Another advantage is that if interest rates rise, your reinvestment can earn yields at that higher rate as opposed to being locked into an interest rate long-term.
There are some limitations to building a CD ladder, as well. For one, there are multiple maturity dates to track. There is generally a small period of time after the maturity date when funds can be withdrawn or reinvested penalty-free. Otherwise, banks usually renew the CD at the original date. There is also no guarantee that inflation and changing interest rates will work to your advantage.
There are different CD strategies you can employ, too, depending on your goals and current finances.
One strategy is to build a mini CD ladder out of shorter-term CDs. For instance, you can utilize the above strategy with 3-, 6-, and 9-month loans, although the rate of return will be lower. If you are unsure about committing to a long-term CD ladder, this can still provide you a solid return over a couple of years. It may even help to build your initial investment towards the more traditional CD ladder.
Another strategy is to split your money unevenly between CDs. This allows you to take advantage of shifting interest rates. For example, when interest rates are rise, banks tend to offer higher rates on short- term CDs. This is the time to invest a larger percentage of your funds into short-term CDs. If they are going down, you would want to invest more into a long-term CD. Obviously, this strategy requires some market knowledge and savvy. PCB is here to answer any questions about CDs and guide you towards the model that’s right for you.
Choosing the Right CDs
PCB offers a variety of CD options tailored to meet different needs. You can choose from short-term CDs that mature in a few months to long-term CDs. The variety of CDs available through PCB makes it the perfect place to build your CD ladder.
Short-term CDs are great for those who might need access to their funds sooner, while long-term CDs generally can help you keep a bigger interest rate even if rates go down. Depending on your financial goals and current financial situation, it might not be feasible to leave money untouchable for five years. Likewise, utilizing only short-term CDs might not give you the return that you are looking for. PCB’s current rates are up to 4.25% on long-term CDs. We offer competitive rates on a variety of other CDs as well. We frequently offer special rates on new CDs that make banking with PCB the place to get impressive returns on your investments.
Integrating CDs with Other Accounts
To start your CD ladder, you might want to move funds from a savings or money market account. Savings accounts are great for setting aside money for an initial investment in a CD. While they don’t offer high interest rates, traditional savings accounts offer flexibility when it comes to depositing and withdrawing money. And because many savings accounts do not have minimum balances, they are great place to start if you are just beginning to build your savings.
Money market accounts (MMAs) offer higher interest rates for larger balances. MMAs will typically have minimum balance requirements. While offering the same flexibility as traditional savings accounts along with higher interest rates, failing to meet the minimum balance could result in fees, potentially cancelling out the account’s high-interest benefits. The interest rates are on a tiered system, which means they will be higher the more money you have in the account. You’ll earn more money as you build towards your investment in a CD ladder.
And don't forget about IRAs! You can include CDs in an IRA to enjoy tax advantages while you save for retirement.
Managing Your CD Ladder
Since each rung on your CD ladder will mature at a different time, it’s important to keep track of when they will mature and have a plan for reinvestment. Luckily, convenient online and mobile banking tools make it easy to manage your CDs. You can track maturity dates, reinvest in new CDs, and see how much interest you’ve earned. This way, you’re always in control of your savings.
With online banking from PCB, you can view and manage all your accounts from the convenience of your home or on the go. This includes your investments such as CDs. Online banking also includes bill pay that saves you valuable time each month. And with PCB’s mobile app, you can track your CD ladder wherever you are.
Set yourself reminders inside your favorite calendar app to notify you when your CDs are about to mature. This ensures that you won’t miss a reinvestment opportunity, and your money will continue to generate high interest.
With branches in Franklin, Petersburg, Moorefield, Harrisonburg, Bridgewater, Staunton, PCB is ready to serve you and your financial needs. If you’re ready to start investing in your future, get started with a CD ladder at PCB today!