How to choose your Certificates of deposit

As we’ve discussed, traditional certificates of deposit, Federally Insured Certificates of Deposits, and Equity-Linked certificates of deposits all provide principal preservation.

Each type of certificate of deposit, however, offers a different risk and reward combination, which is reflected in the investment’s potential yield of each certificate of deposit.

So how do you know which certificate of deposit type is the most appropriate choice for you?

For many investors, the answer to How to choose your Certificates of deposit depends on factors such as

For instance:

• If you’re an income-conscious retiree, you might consider a Federally Insured Certificate of Deposits

• If you need a short-term "cash equivalent", a traditional certificate of deposit might be appropriate

• Growth-oriented individuals of any age may find Equity Linked certificates of deposit appealing  

In addition, when choosing certificates of deposit you should consider...

Larger brokerage firms bring issuers from across the country, they are able to consistently offer a yield advantage over the national average.

• A Wide Range of Certificates of deposit Maturities

Many certificates of deposit have maturities that generally range from three months to 10 years, which can make them an effective security for use in a ladder portfolio.

A ladder portfilio is a portfolio of bonds or certificates of deposit of different maturities. For example, you may have a bond maturing in 1 month time, 3 months, 6 months, and 1 year. Spreading the CD maturities like this will give you cashflow all year round or whenever you need.

With the ladder portfolio of certificates of deposit and bonds, you can diversify your investments over short- and intermediate-term maturities.

The inclusion of intermediate-term (5-10 year) certificates of deposit — which typically offer higher CD rates — can help improve the average yield of your portfolio and effectively minimize reinvestment risk.