Financial Word of the Week: Laddering
Last week, we explained how Certificates of Deposit (CDs) can be a wise option due to their higher interest rates compared to other types of bank accounts. One way to avoid early withdrawal penalties if emergencies arise is to “ladder” your CDs.
Laddering CDs involves investing your money at different maturity terms so they become available at different periods. To create a CD ladder you should research various financial institutions for the best rate. Once you identify where to invest your money, decide how much you want to invest over each term—divided evenly or unevenly. Invest the determined amount in each CD, choosing different terms. For example if you have $30,000, invest $5,000 in each a 6, 12, 18, 24, 30 and 36 month term CD. When each CD reaches maturity you can either reinvest or take out any money that you may need.
Laddering CDs is popular during an economy where rates change frequently. Remember to ask financial institutions what their pre-payment penalties are on CDs. Many people favor investing in a longer term CD to get the best rate and take the risk of paying an early withdrawal penalty due to the low penalties.
UMB Financial Corporation (Nasdaq: UMBF) is a diversified financial holding company headquartered in Kansas City, Mo., offering complete banking services, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska, Arizona and Texas, as well as two national specialty-lending businesses. Subsidiaries of the holding company include companies that offer services to mutual funds and alternative-investment entities and registered investment advisors that offer equity and fixed income strategies to institutions and individual investors.