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Certificates
of Deposit
Click
here for current rates. Certificates of
Deposit are a safe way to invest your funds for a longer term and higher
yield. Midstates offers Certificates of Deposit with a variety of
maturities. For your convenience, interest can be deposited
directly into your checking, savings or money market account with the
Bank.
Are
You Laddering Your CD Maturities?
Choosing
the length of savings certificates is an important decision. The issues of
liquidity and the future direction of interest rates can make the decision
difficult. Longer maturity certificates usually provide the highest
return, but they also tie up your funds longer. Shorter maturities provide
flexibility to take advantage of rising rates, but usually lower returns.
Ideally, you would want the highest current return coupled with the
ability to invest at higher rates if interest rates rose.
Creating
a "ladder" of maturities is a way to create a
"portfolio" of certificates that will put you in a position to
earn good rates and invest at higher rates if interest rates rise. Simply
stated, with this strategy, you divide your funds into pieces and buy
equal amounts of different maturity certificates. Here is an example:
EXAMPLE
Let's
assume you have $25,000 and want to buy certificates with maturities up to
five years. The rates on certificates are:
|
Term |
APR |
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1 year
|
1.18%
|
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2 year
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1.60%
|
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3 year
|
2.00%
|
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4 year
|
2.43%
|
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5 year
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3.00%
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By making initial purchases of $5,000 each
of the different maturities, your average rate would be about 2.04%. Each
year, as a certificate matures, you would use the proceeds to buy a 5-year
certificate. That way, as time went on, more and more of your funds would
be earning the highest rate and you would still have annual liquidity. If
rates rise, you have liquidity to buy higher yielding certificates. If
rates fall, you are still earning high rates on your existing positions.
No one can accurately predict the
future of interest rates. Using this "Ladder of Maturities"
strategy can help position you to benefit regardless of the direction of
interest rate changes.
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