CDs allow you to earn a return on your money while keeping it accessible for use for major expenses. If you’re planning on buying a house or car, keeping your down payment in a CD can hasten growth toward your goal.  However, if you’re saving for two large purchases, it can be difficult to make partial withdrawals from a certificate.  

Here are three ways to solve this problem:
 
1.) Lump it all together
Place all your savings – your down payment, car funds, vacation savings and rainy-day money – in a single CD.

Pros:
Simplicity. One statement to review and only one document with dividends listed to unearth during tax time. Additionally, larger sums of money often earn better rates, improving your long-term returns. When you’ve achieved a savings goal, you can withdraw what you need and create a new CD with remaining funds.

Cons:
With all your money in one pot, it can be difficult to determine how close you are to each goal. You’ll also be limited to the time frame of your shortest-term goal; if that goal is one year from now, you’ll need to close the CD then, leaving you with a short-term rate that may not be as profitable as a long-term rate.

The bottom line:
A single CD works best when your savings goals are on a similar time frame or if simplifying your financial life is your priority.
 
2.) Different certificates for different goals
You can open separate CDs for your car down payment, your house savings and your emergency fund. Each would be held in different CD accounts, earning interest separately.

Pros:
By separating your savings goals, you can lock long-term goals into long-term CDs, earning better rates. Without your money tied to your shortest goal’s term, you can stagger your terms to meet the individual needs of each of your goals, allowing you to earn better rates and make more strategic withdrawals. With more opportunities to re-lock rates, you also avoid the risk of missing better rates that may arise.

Cons:
The variable interest rates make it difficult to determine your earnings.  Multiple accounts preclude you from getting the best dividend rates in “jumbo” CDs. In the event of an emergency that requires dipping into savings, you may have difficulty accessing a significant portion of your money.

The bottom line:
Multiple certificate accounts offer the flexibility and security helpful for those with a diverse range of goals.
 
3.) The ladder
A CD “ladder” uses multiple long-term CDs opened at regular intervals. A ladder’s objective is to secure the best rates possible while ensuring some money is still available at regular intervals. For example, a five-year ladder involves buying a series of CDs so the five-year account is maturing each year.

Pros:
A ladder is flexible and helps lock in the best available rates reserved for long-term CDs. It also protects against the drawback of those CDs by giving you the option of reinvesting when rates change and securing those better rates.

Cons:
Setting up a CD ladder requires very careful planning, and the minimum investment is much higher as you require the minimum deposit of not one, but five CDs. Additionally, only one-fifth of your savings are available at any one time. If you’re saving for a large single goal, this can complicate matters.

The bottom line:
Ladders are a complex strategy that can maximize returns for those who are saving for flexible goals like vacations, home renovations and vehicles.

CDs make saving for your goals easier. Call, click or stop by Greater Iowa Credit Union today and we'd be happy to help you!