For example, if you had $20,000, you could open four CD accounts, each with deposits of $5,000, with terms of three, six, nine, and 12 months. When the three-month account matures, you can roll the money over to another 12-month CD (or spend it, if you need the cash). You can set up a ladder yourself or have a broker do it for you.
Here are some questions and answers:
How can I make sure my savings are covered by federal deposit insurance?
Given the recent banking turmoil, savers are especially interested in making sure their funds are protected. He Federal Deposit Insurance Corporation generally protects up to $250,000 per depositor, per insured bank. If you share an account with another person, you each get $250,000 of coverage, for a total of $500,000. (The federal government chose to insure all deposits, even those over the insured limit, at the two banks that failed in March. But there is no guarantee that the government will do so in the future.)
The FDIC also insures funds based on the type of account ownership, so it’s possible to get more than $250,000 in coverage per depositor at the same bank, depending on how the funds are held. A couple, for example, might have a joint savings account with $500,000 and two separate accounts in their names with $250,000 each, and be insured for a total of $1 million, according to the FDIC’s online insurance tool.
Insurance for multiple people and different types of accounts can be complicated to analyze, so the FDIC has a online tool to help you estimate your total. You also can send questions online or call 1-877-275-3342 (1-877-ASK-FDIC) for help resolving it.
What if I need more than the standard FDIC coverage?
If you’re lucky enough to have enough cash in the bank to need more coverage, you can extend coverage by opening accounts at different FDIC-insured banks and keeping balances below the coverage limit. Keeping track can be a chore, so some institutions do the work for you. Big financial firms like Vanguard and Fidelity They offer brokerage CDs, issued by banks for clients of brokerage firms and investment firms, that allow investors to hold certificates from multiple insured banks.
And some banks participate in networks that distribute cash among multiple institutions. One network, IntraFi, works with thousands of banks. Ask your bank if it is a member or look for participating institutions in Intrafi website. Fintech companies providing similar services include online wealth advisor Wealthfront, which offers a cash account that pays 4.3 percent and FDIC coverage of up to $3 million by “sweeping” deposits into insured accounts. in associated banks.
How can I avoid early withdrawal penalties with CDs?
The best way to avoid penalties is to make sure you don’t need the cash before the end of the CD’s term. But you should also check the fine print before you open the CD, Tumin said, to make sure the penalties seem reasonable if you want to withdraw your money early.
Some banks offer modest penalties, say a few months of interest, while others may charge up to 18 months or more for longer-term CDs. If you find a CD with a good rate but has a hefty withdrawal penalty, he said, it may make more sense to choose a savings account that has a slightly lower rate but doesn’t lock up your money.