Bullets, barbells and CDARS for your CD’s

There are many ways to manage your investments, one of the most popular being buying certificate of deposit or a CD. But not all CD’s are created equal nor do you have to approach every CD purchase with the same strategy each time.

Here are some strategies you might have yet to consider.

Strategy bullets

With a bullet strategy, you stagger purchases of CDs but make sure they all mature around the same time. By staggering the purchases you reduce the risk of buying all the CDs when rates are at their lowest…a good strategy when you're saving money for a specific goal such as college or a new future big purchase-like a car-you know you’ll need money for in four or five years.

Strategy barbell
The barbell strategy allows you to take advantage of high yields at some point on the yield curve while hedging your bet at another point. Balancing your investment you use some money to buy CD’s with longer maturities paying the best interest, and spend the rest of your money on short-term CD’s allowing some liquidity and the advantage of possible rate changes.

Strategy CDARS
Normally, bank deposits are insured up to $100,000 by the Federal Deposit Insurance Corporation, or FDIC, and up to $250,000 in the case of retirement accounts. CDARS, a deposit placement service, gives you a way to invest more than $100,000 in CDs, with the full amount insured. Certificate of Deposit Account Registry Service, is run by Promontory Interfinancial Network. Banks that subscribe to CDARS can give individual CD buyers up to $10 million in FDIC coverage.

There are approximately 700 banks across the country offering CDARS.

The bullet, barbell and CDARS are just a few ways to approach your CD investment. It’s your money, be smart when using it to make you more money.

How to use a mortgage calculator

An online mortgage calculator can quickly and easily predict both your mortgage payment and amortization schedule. All you’ll need to get an accurate account is the following information:

1. Mortgage amount.

If you're looking to buy a new home a mortgage calculator is a good way to estimate how much home you can afford. To get this number simply enter the amount of the house you’re considering buying, minus any down payment you may be planning on making. If you're refinancing an existing home loan, this number will be the outstanding balance on your mortgage.

2. Mortgage term.

This is the length of the loan you're considering. Many young or first time homeowners go with a standard 30 year loan but there are other terms readily available. There are both longer and shorter term mortgages available from various lenders. Home loans can range from as short as 5 years to some as long as 40 years or more. 

3. Interest rate.

Interest rates can vary from person to person either because of their own personal credit history or from geographic area to geographic area. You can get a projected rate by researching the mortgage rate tables for the area where you’ve been house hunting.

4. Mortgage start date.

If you're buying a home or refinancing soon, this should be the date you plan on closing. But if you're trying to get more information on a mortgage you already have, set the date to your original closing date.

Once you’ve entered these four pieces of information into the calculator it can instantly display a hypothetical mortgage payment for the situation you’ve entered. By changing key information, such as the length of the loan or slight changes to the interest rate, you can see how small changes can effect what you ultimately pay for your home. Wondering what you'll owe on your mortgage in July 2019? Curious how much you home will ultimately cost you once all the interest has been taken into account? By clicking the “Show/Recalculate Amortization Schedule” you can find out.

Because the mortgage calculator also offers the ability to enter any extra payments you may make on your loan it can also show you how much you can cut down on the amount of interest you pay or how to reduce the length of your loan.

Hedge the risk with a CD ladder

Even though CDs are a low-risk investment, you may be looking for something with even more security in a down economy. CD rates are fairly low, but building a CD ladder can hedge the risk of rate cycles by giving you the benefit of investing in both short and long-term maturities. It also gives you the advantage of liquidity, as laddering keeps your CDs consistently maturing and paying out.

How it works

Think of the rungs on a ladder to better picture how a CD ladder works. The first rung of the ladder is the shortest period. If you have $100,000 to invest over a five-year period, you’d invest $20,000 into a one-year CD on the first rung. The second rung would be a two-year CD at another $20,000 and the third a three-year CD at $20,000. This continues up to five-years. As each CD matures the next moves up a year, allowing you to reinvest that money each year or use it for other expenses. Since CD rates are low, CD laddering gives you the opportunity to reinvest each year if yields rise.

Find the best CD rates

If you decide to build a CD ladder, it’s important to find the best rates possible. Look for deals at banks, credit unions, savings institutions and brokerage firms to compare before you begin. Some institutions are posting higher rates to attract deposits.

3 situations that benefit by using a mortgage calculator

A mortgage calculator is typically used to calculate payments for a new mortgage, but it can also be used for several other common calculations. Consider these three other mortgage calculator uses.

Considering an adjustable-rate-mortgage

An adjustable-rate-mortgage, or simply ARM, is enticing due to its lower initial interest rate, but don’t be wooed until you plug it in to a mortgage calculator. Enter the ARM interest rate into Bankrate’s mortgage calculator with a 30-year term. Compare those payments to the conventional 30-year fixed mortgage payments. You’ll either be delighted about the possible benefits of an ARM – or pleased to step away from the risky venture despite the potential advantages.

Saying “bye” to private mortgage insurance

When you have 20 percent equity in your home, you can request that the lender waive the private mortgage insurance obligation. Using the mortgage calculator, you can see when you’ll reach this magic number.

Enter the closing date and original amount of your home mortgage and select “show/recalculate amortization schedule.” Multiply your original mortgage by 0.8 and find the closest matching number in the amortization schedule’s far-right column. This is approximately when you’ll have 20 percent equity in your home.

Paying off your mortgage early

Bankrate’s mortgage calculator allows you to enter amounts for “extra payments,” which can shorten your term and save you money. To avoid being the typical 30-year-fixed-rate mortgage holder, whose total interest payments are usually larger than the original principal on the loan, calculate potential savings using the calculator. Enter an extra payment goal in one of the boxes and click “show/recalculate amortization schedule” to see the difference. You could knock off years of your term and save significant amounts of money.

3 routes to better CD rates

While CD rates are hovering near record lows, they can still provide a safe place to store your money while earning some additional income. All CDs are not created equal, though. As you begin your quest to lock in an interest rate, here are three tips to help make your search more successful.

Take CD shopping seriously

Finding the most competitive CD rates requires some research. First, determine how much you can afford to invest and the length of time you can part with your funds. Then, start comparing rates at a wide range of banks. Rather than simply look at credit unions and banks in your town, go online to compare the best CD rates available nationwide. While larger amounts and longer maturity periods typically mean higher yields, you can find attractive rates for short-term CDs, too.

Find deals that do more for your dollars

Remember – the banking industry is competing for your money. With creative marketing departments on their sides, banks promote all kinds of programs for CDs to entice your interest. These deals may lock you into a longer maturity period, but they typically reward you with a higher yield. To determine if the deal is worth it, you can calculate your CD income before you invest.

Look closer at your CD

Before you make your final decision on a new CD, be sure to educate yourself on the fine print. The majority of CDs have stiff early withdrawal penalties. If you have any concern that you may need to remove your money before your account matures, make sure you find a CD with some flexibility. 

3 keys to successful retirement planning

3 retirement planning essentials

For most, retirement is the light at the end of the tunnel; but if you don’t plan it right, that light could disappear. Solid retirement planning requires you to implement a plan that leaves you with enough retirement income to last you the rest of your years. Unfortunately, it’s easy to underestimate the amount of monthly income you’ll need. A few essentials can keep you on track. 

Determine your needs

According to the Department of Labor, you need to replace an estimated 70 to 90 percent of pre-retirement income for each year of retirement. The easiest way to do that is to make a target goal and meet it. When retirement planning, estimate your target goal based on your current income and how long you expect to live after retirement. Then factor in extra variables such as medical costs, vacation expenses and fixed costs like owning a home. 

Review your retirement planning

Once you have a target goal in mind and your retirement plans are in place, you should review the plan regularly to see your progress. Assess how you’re doing. Once things look good, start factoring in Social Security benefits, future salary increases and the rate of return you’re getting. Inflation and other assets that you have should be factored into your retirement plan as well.  

Create a plan

It’s good to have an official plan set in place that you can follow to hit your retirement goals. Eliminate any debts that you currently have and start contributing as much as you can to your retirement accounts. Consider working past your retirement age to contribute more to your retirement and reap the benefits that Social Security offers for those that retire later.

Retirement planning with stocks at age 50

You may be feeling a little shaky about investing in stocks if you’re age 50 or older, but don’t let the rocky market completely scare you away from retirement planning. While many lost a large chunk of their money due to the falling market, research has shown that the market generally trends upward over long periods. If you’re age 50, there are still 15 years until retirement, meaning that you can take on some risk as long as you’re careful.

Balance your stocks

As a general rule, subtract 100 from your age to get the percentage of stocks you should have in your portfolio. So if you’re 50, then you should have 50 percent of your portfolio in stocks. However, if you have little risk and a high life-expectancy, many experts agree that the percentage should be more around 65 or 75. After you turn 60, pull the percentage down to 50. If you don’t feel comfortable with that much risk, abide by the rule of thumb for investing in stocks when retirement planning.   

Put retirement planning on autopilot?

Target-date funds take the decision making out of investment by automatically adjusting the amount of stocks, bonds and cash in the fund as you age. While they can provide an easy way to manage your retirement fund, it may be more beneficial to rebalance your portfolio on an as needed basis. You may get better returns through a proactive approach of checking your investments at least once a year.  

Can you afford the risk?

If your savings is high enough, and you only need to spend a small amount to supplement your pension, then you can afford to invest aggressively. If you have a smaller savings and have to take out a large amount per year, then you should be more invested in fixed income.