KNS Financial

Personal Finance From a Biblical Perspective

How to Create Your Own CD Ladder

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Lots of people are really disappointed with the rate of return they are getting on their savings. That’s even causing a lot of people choose not to save. After all, the alternatives are a lot more exciting. Instead of putting your money in the bank, you can spend it on things that you like, or take a chance at higher returns by investing in the stock market.

Both outcomes are the exact purpose behind the super low interest rates we are seeing. If you are out shopping and/or investing your money in stocks, you are doing exactly what policymakers want you to do with your money. But what if that’s not quite what you want to do?

If you like having money in the bank, and you want to get better interest rate returns than you are getting in money market funds and savings accounts, you may be interested in building your own CD ladder.

CD Ladder Strategy

What is a CD Ladder Strategy?

A CD ladder is a portfolio of certificates of deposit (CDs) with varying maturity dates. The best way to explain this is with an example. Let‘s say that you have $12,000 that you want hold in your savings. You want to invest it in CDs because they pay more than savings accounts or money markets. But at the same time, you don’t want to tie all of your money up in one CD for six months or a year.

You can create a CD ladder by investing $1,000 each month in a one year CD. Since you have $12,000, you can purchase one $1,000 CD each month for a year. After one year you will have a portfolio of CDs, with one renewing every month.

In effect, you will have created your own high interest rate money market fund, complete with FDIC insurance. Since you will have a CD renewing every month, you’ll be able to take advantage of higher interest rates as they become available. Should rates drop (which is hard to imagine considering how low they are right now) you will still have a large number of older CDs drawing higher interest rates.

Why Should You Want To Build One?

The reason for building a CD ladder is simple: money market funds and savings accounts are paying interest rates that are a low fraction of 1%. Because they are time deposits, CDs have higher interest rates. By laddering several CDs you avoid tying your money up in a single security.

Using A CD Laddering Strategy For Liquidity

In the example above, we described a CD portfolio in which one CD will be up for renewal every month. That will enable you to have access to at least some of your cash each month, with more coming available with every passing month. This will enable you to earn higher rates of return than you will get in savings accounts and money market funds, while still preserving some measure of liquidity.

If you want to increase the liquidity of your CD ladder, you can always invest in short-term CDs. You can build your ladder using three months or six months CDs, rather than one year CDs. That will improve your liquidity but it will also cut down CD rates of return, since shorter-term securities pay lower rates of interest.

CD Ladder Strategy For Interest Rate Return

You can also extend your CD maturities in order to increase the rate of return. You can do this either by investing in longer-term CDs, such as 18 month or two year CDs, or you can build a portfolio of CDs with various maturities.

As an example, you can make a CD ladder that includes maturities of six months, one year, two years and five years. Longer-term CDs will generally pay higher interest rates, while the shorter-term CDs pay less. The blending of the various maturities will create an even higher rate of return than you will get on a ladder composed entirely of short-term CDs. But with the longer term CDs you will also be losing liuidity, since longer maturities also mean slower renewals.

How Complicated Is It To Develop A CD Ladder Strategy?

Building your own CD ladder isn’t that complicated. In fact once you get it going it’s a completely passive undertaking. You can set up your CD ladder, then authorize your bank to automatically roll the CDs over as they mature. Typically, you will have them rolled over into CDs of the same term.

You can purchase CDs out of your savings account or bank money market fund. You can make your monthly purchase, or purchase a portfolio of CDs with varying maturities, either of which is a simple process. There will be little to do, and higher interest income to collect.

It will be like creating a high interest money market fund, but one that you control.

photo credit: Freedigitalphotos.net

Re-Purpose Your Used CDs And DVDs And Save Money

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[The following is a guest post brought to you by Music Magpie]

Reusing and re-purposing are the new watchwords of the season. Throwing something in the trash is passé. Re-purposing something into a new something is a great way to save some money. Recycling, re-purposing and up-cycling all have similar yet different meanings.

Re-Purpose Your Used CDs and DVDs

Re-purposing your used CDs and DVDs into something new again can save you a little money and create great personalized gifts and craft projects. Damaged or scratched CDs aren’t worth much if you can’t listen to them. Creating fun crafts and party favors are a great way to add interest to a dinner table or themed event.

Re-Purposing Used CDs and DVDs – For the Crafty Person

Place Cards

Create stylized and entertaining place card holders for a musically themed or movie themed party. Choose among your damaged or duplicate CDs with artists and titles that suit your guests’ personalities. Create CD labels using free software and purchased CD labels. Label each one with a guest’s name, affixing it to the damaged media side of the CD. Place the CDs with artist side up at each place setting.

As the guests arrive and through the cocktail hour leading up to the dinner, have them review the potential seating arrangements. As dinnertime approaches, have each guest pick a first and second choice as to who they think the artist is that most represents them.

When it is time to sit, enhance the game by having each guest stand or sit at their selected artist location. If they are right, they stay seated and if they are wrong, they change places with the correct person identified on the back. Continue until all guests are seated correctly. This activity should take approximately five to ten minutes depending on the quantity of guests and their level of participation!

This is great fun and interesting dinner conversation.

Trivia Napkin Holders

CDs and DVDs have holes in the center, not large enough for a napkin but certainly large enough to slip a ribbon through and tie a pretty bow. Fold napkins in a fan shape, secure with a ribbon in a simple knot and slip the tails of the knot through the center of the CD from the back.

Tie a pretty double bow to secure the CD to the napkin and place at each place setting. Prior to attaching to the napkin, do a little homework on each artist, such as living or dead, DOB, birth place, most famous song, number of hit singles and other interesting facts. Put all these facts together on a CD label and affix to the media side of the CD. During dinner, guests share their artist trivia.

It makes for wonderful dinner conversation, especially when some of the dinner guests are new acquaintances.

For the Not so Crafty Person

CDs can add life to simple place settings or dessert plates. Use damaged CDs at each place setting as an interesting music themed coaster for wine glasses (you can try this with damaged money, but it probably won’t go over so well). For more formal dinners with sorbet or a chilled first course, use CDs as doilies for serving plates.

Used CDs and DVDs can also double as mini place-mats for ice cream or other frozen desserts served in stemmed goblets. No crafting is required, but your guests will be impressed with your ingenuity.

If you are looking for a few extra dollars to help flush out your holiday party budget, gather all your CDs and sell them. There is definitely no crafting involved here. Check online for buyers, pack them up and ship them off.

The newest way to thin your collection and make a few bucks, selling CDs online, can be a very profitable venture if you have the time to create the ads or develop a website. You will be a musicmagpie CD selling success in no time.

photo by Giovanni Sades

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