March 5, 2013 by Victoria
It’s tax return time. The time when groupon getaways look extra tempting. The time when everyone wants to celebrate their birthday, you know the time you want to “watch it all fall down” Rhianna style.
When Rap asked me to write a post on how to responsibly invest your tax return, not only did I send her the laughing emoji- but I was really laughing out loud. I had no intention of investing in anything other than an airline ticket. Until I realized I have limited vacation time.
I decided to challenge myself to “stack this money”.
Since I don’t have any vacation time anyway, I decided to take Rap up on the challenge. I began to search for the best way to save my money.
Helpful sites like http://www.bankrate.com will help you determine the highest interest rate you can earn on a CD.
NO, not the stereo CD, but a Certificate of Deposit.
A CD allows you to put a certain amount of money in the bank for a specified amount of time. If for any reason you withdraw before the CD matures- you pay a penalty fee. The bonus is that you will earn interest that is usually at a higher rate than a savings account.
NOW that you are all fiscally fab, lets kick it up a notch.
I decided to do CD Laddering.
for this example lets assume I have $1500 that I want to save.
I decided to split this amount into three $500 CD’s.
CD laddering means that I will choose different time frames for these CD’s to mature. They will always mature at a different time.
In March I decide to deposit:
CD A :$500 (3 month CD)
CD B: $500 (6 month CD)
CD C: $500 (9 month CD)
On June 1st CD A will be matured and I would be able to take my $500 out.
CD B will only have three months left.
CD C will only have six months left.
Do you follow?
If I have an emergency- I can take my $500, or I can re-deposit it (plus the interest it earned) back into a 9 month CD, and keep laddering.
CD laddering allows you to earn interest, put your money away in a safe place, but also always have access to short term funds. It may be hard to put $1500 away for 9 months when you don’t know what life will bring. With laddering, there’s always a little money that’s not too far away.
I did my laddering with BARCLAYS bank, because they had the time frames and minimum deposits that worked best for me.
(They are also online, less temptation and I deposit right from my checking account)
I didnt say much about the interest rates on CDs right now. That’s because they are all pretty much crap unless you are putting your money away for two years or more.
Sadly at this stage of the game Im thinking “Two years?! Aint nobody got time fo’ dat!!”
A penny saved is a penny earned.
Unless you compile your interest daily, because then it can be like a 1.5 pennies earned.