Q. I have my emergency fund in laddered CDs worth about $50,000, and one CD comes due every year or 18 months. With interest rates going higher, should I wait before investing the next one that comes due?
— Trying to be smart
A. Having an emergency fund is very important to your overall financial plan, and we’re glad to see you’ve got one.
We’re also glad to see you have it in safe investments.
CD laddering involves buying CDs that mature at staggered dates, rather than a single long-term CD.
Laddering CDs is a strategy to reduce risk but get a better return on money than just having it sit in cash at lower rates, said Bill Connington of Connington Wealth Management in Fairfield.
“With rates rising and wanting to maintain the strategy, then it would make more sense to reduce the laddering to use six-month CDs to get better return on your money and yet increase liquidity,” Connington said. “The idea being to reduce the length of term and then move out as rates get higher.”
So for this, Connington said, you would buy a six-month, 12-month, 18-month and 24-month CD. Then when the six-month CD comes due, you’d buy another 24-month CD. That would mean you’d have a CD coming due every six months.
He said this strategy will give you liquidity and flexibility, and you’ll be able to choose longer-term CDs with higher rates and still have certificates maturing on a regular basis.
And, it would give you some peace of mind.
“If interest rates go up, you’ll have cash to invest in new CDs,” he said. “And if rates fall, you still have money invested in long-term CDs that come with higher rates.”
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