I came across an interesting article on the New York Times website about using laddered CD's (Certificate of Deposit) instead of a typical savings account. Normally, the downside of putting your money into a CD is that you cannot access it until the CD matures without incurring a penalty. However, with the laddered CD strategy, you open up multiple CD's of varying durations so that every few months at least one of the CD's matures. That way, you always have access to part of your savings.
Of course, there are a couple of caveats to this strategy:
1. If you have a specific savings goal for which you need your money, you will need to synchronize the maturity dates of the CD's with the time frame of your need.
2. If you have an unexpected need to have access to a significant chunk of your money, you will need to be prepared to withdraw your money prior to maturity and incur a penalty.
That being said, this certainly is a viable strategy for emergency savings or some other savings where you are concerned with preserving principal. For longer term savings goals, like college or retirement, you might be better off in stocks, bonds, or another investment which does well over the long term.
Star Money Articles for the Week of May 22
3 days ago