How to Earn More Money by Laddering Your CD’s
Maybe you’ve heard the term “laddering CD’s.” Minnesota National Bank wants to take this opportunity to explain what this means and how YOU can use this method to grow your money and offer you liquidity at the same time.
The 1 year CD is the bank’s most popular CD since it offers a higher rate of return than a savings account, but it doesn’t tie up a person’s money as long as a 5 year CD. However, the 5 year CD usually pays the highest rate of return. So, how can you
invest at the highest possible rates, but keep some money liquid every year? This is where laddering your CD’s comes into play.
Here’s how it works: Let’s say you have $50,000 to invest in CD’s. Instead of investing all the money in a 1 year CD, try breaking the money into 5 CD’s of $10,000 each and invest each with a term of 1, 2, 3, 4 and 5 years. When the first CD matures, every CD you started with will be one year closer to maturing. Then, reinvest the money you don’t need back into a 5 year CD and you’ll continue to have money coming due again in 1, 2, 3, 4 and 5 years.
See the example below which illustrates how you will earn a higher yield.
*EXAMPLE *EXAMPLE RATES:
1 year CD=$10,000 1.00%
2 year CD=$10,000 1.25%
3 year CD=$10,000 1.50%
4 year CD=$10,000 1.75%
5 year CD=$10,000 2.00%
If you put all your money in the 1 year CD, then you will earn 1.00%. If you put an equal amount in each term, then you will earn an average of 1.50%. As you reinvest each maturing CD into a 5 year term, you’ll earn an even greater spread above the 1 year CD in the future even if rates are rising or falling. Eventually, all your CD’s will be earning the 5 year rate.
*Rates are just for illustration purposes only and do not necessarily reflect current interest rates being offered at this time.
Contact any Minnesota National Bank office for more information on CD’s, Sauk Centre, 877-655-5211, Long Prairie, 877-732-2133, and Pelican Rapids, 877-863-6688.