Bullets, barbells and CDARS for your CD’s

There are many ways to manage your investments, one of the most popular being buying certificate of deposit or a CD. But not all CD’s are created equal nor do you have to approach every CD purchase with the same strategy each time.

Here are some strategies you might have yet to consider.

Strategy bullets

With a bullet strategy, you stagger purchases of CDs but make sure they all mature around the same time. By staggering the purchases you reduce the risk of buying all the CDs when rates are at their lowest…a good strategy when you're saving money for a specific goal such as college or a new future big purchase-like a car-you know you’ll need money for in four or five years.

Strategy barbell
The barbell strategy allows you to take advantage of high yields at some point on the yield curve while hedging your bet at another point. Balancing your investment you use some money to buy CD’s with longer maturities paying the best interest, and spend the rest of your money on short-term CD’s allowing some liquidity and the advantage of possible rate changes.

Strategy CDARS
Normally, bank deposits are insured up to $100,000 by the Federal Deposit Insurance Corporation, or FDIC, and up to $250,000 in the case of retirement accounts. CDARS, a deposit placement service, gives you a way to invest more than $100,000 in CDs, with the full amount insured. Certificate of Deposit Account Registry Service, is run by Promontory Interfinancial Network. Banks that subscribe to CDARS can give individual CD buyers up to $10 million in FDIC coverage.

There are approximately 700 banks across the country offering CDARS.

The bullet, barbell and CDARS are just a few ways to approach your CD investment. It’s your money, be smart when using it to make you more money.

Hedge the risk with a CD ladder

Even though CDs are a low-risk investment, you may be looking for something with even more security in a down economy. CD rates are fairly low, but building a CD ladder can hedge the risk of rate cycles by giving you the benefit of investing in both short and long-term maturities. It also gives you the advantage of liquidity, as laddering keeps your CDs consistently maturing and paying out.

How it works

Think of the rungs on a ladder to better picture how a CD ladder works. The first rung of the ladder is the shortest period. If you have $100,000 to invest over a five-year period, you’d invest $20,000 into a one-year CD on the first rung. The second rung would be a two-year CD at another $20,000 and the third a three-year CD at $20,000. This continues up to five-years. As each CD matures the next moves up a year, allowing you to reinvest that money each year or use it for other expenses. Since CD rates are low, CD laddering gives you the opportunity to reinvest each year if yields rise.

Find the best CD rates

If you decide to build a CD ladder, it’s important to find the best rates possible. Look for deals at banks, credit unions, savings institutions and brokerage firms to compare before you begin. Some institutions are posting higher rates to attract deposits.