Savvy Savings – Have you heard of CD laddering?

I recently looked back at my financial progress and wondered how did I get here? I often see similarities between fitness and finances, it just takes small consistent steps to reach the bigger goal. Think of this as my “couch to 5k” version of less debt. It’s different for everyone, but we can all achieve great progress through small steps. My first teeny tiny step was during my senior year of college….um yeah, crazy.

I was laughed at when I first said {as a poor student} I’m putting $75 into a CD….meaning an interest earning certificate of deposit. I’m am an avid credit union member, I have been my whole life. So when I was looking to get started, AS A BROKE COLLEGE STUDENT, my credit union suggested a CD. These credit union folks are genius and have your financial well being in mind because as a member, you’re a part owner!

What you are doing is giving your credit union your money to hold onto {for awhile} and it’ll gain interest. The lengths of terms vary, so check the rates of your financial institution. I decided to give them $75 for 12 months I think….which is forever, but they gave me my money back plus interest once the 12 months was up. Pretty cool huh? Easy Peasy. The Simple Dollar also breaks it down for you in this article.

I’m dredging this old financial wisdom up because today my only debt is my mortgage and car, nothing else and I’m looking back at how I got here.  You have to start somewhere, get off the “couch” and take the first step. You also need to set a goal to work towards a.k.a. your “5k”. Is it to start a bit of saving, tackle your emergency fund, pay down credit card debt, save for vacation or even pay off students loans? This $75 was my first step to starting a savings that can grow long term for me.

I’ve come across a great fellow blogger’s advice on investing in CD’s and just rolling them over to other CD’s continuously…CD laddering. I just discovered CD laddering, here’s some great information from NerdWallet.

In reading up on this, it turns out CD’s are not the best way to grow your money until after you’ve reduced your debt to say a car payment and mortgage. You’d be doing yourself a disservice of gaining 1-2% interest on a CD if you are also paying 13-30% on a credit card. So a CD ladder may be best after you’ve tackled emergency funds and high interest debt and loans first, like credit cards, home improvement loans, student loans etc.

Of course, this investment is not for everyone, you have to decide what’s best for you and how after paying most of your debt, you can get your savings to work better for you. CD laddering is a strategy to invest in various long term certificates of deposit and as the shorter ones mature, you roll it over to a longer term. The longer the term on a CD, typically the higher the interest rate. Online CD’s usually have higher interest rates than brick and mortar financial institutions.  Another con is the interest is taxable, so weigh that factor when you are strategizing. Look at term, interest rates and know that your money is tied up for the term in most cases, with a penalty for withdrawing the money early. This might be best savings strategy when you are in saving and investing mode only and you are mostly debt free.

My next financial life lesson was pretty epic, so I’ll cover the importance of an $1,000 emergency fund.


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