I would like to know whether to buy Certificates of Deposit in large amounts, or would it be better to split the money up that you have to put in CDs?
Pam from Georgetown, SC
Hi! I dont know how long you've been waiting. Banks often offer higher rates for CD's over 100M, so if you have that much, you may take advantage of them. The downside is that the FDIC insures deposits UP TO 100M, so if the bank should go belly up, you'd lose the amount over 100M.
Personally, I prefer a series of smaller CD's. On Jumbo CD's you can often get a higher rate, but if you need cash from it in an emergency the penalties for early withdrawal or adjustment will be steep. I maintain a "ladder" of annual CDs, each maturing on the 15th of a different month. Thus I am always within thirty days of being able to withdraw some cash without penalty. Haven't needed to do so, but it's good to have the option. Beth
Sometimes you can get a better rate for larger amounts but really think about whether or not you might need the money or when you might need it, for an emergency or for something you will need to buy.
The length of time is also a consideration. You can usually get a higher interest rate for 1 year than 6 months. Invest it in several CDs of different amounts and varying lengths of time. That way if you need to cash some of them in, the penalty will be on smaller amounts. There's always a trade off in the amount of the CD and the highest interest rates. You can use both to your advantage. Rose is right about the amount of deposit that is insured. Always keep that in mind. If you are dealing with large amounts of money, split it up between several banks so if something should happen to one of them, none of them has more than the maximum amount insured.
Susan from ThriftyFun
What others have posted is called laddering.For example you have $10,000 in invest in a CD.You would invest $2,500 every 4 months.Then every 4 months you would have a CD come due.If you needed the cash you could with draw it.Otherwise you would just roll over the CD.
DON'T let CDs roll over. Whenever they come due, always call the bank to find out how to maximize yield. For example, one month you might find 11 month CDs paying more than 12 month ones, in which case, change to 11. I've seen 11 month and 13 month CDs with better yields than 12 month, almost like the bank is counting on people to let their CDs roll over.
Also, when a CD is coming due, watch the paper for specials for NEW money from other banks. It doesn't take long to pick up the check from one bank and take it to another. CDs are a safe way to save, but not the best yield, so do whatever you can to earn the best amounts. It will really add up over the years.
Be sure to keep all of your documents in one safe place and up to date in case anything happens to you.
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