Tuesday, December 22, 2009

What to do about maturing certificates

You can't sugar coat it, savings rates everywhere are dismal, especially if you compare certificate rates from a few years ago. I've got a few certificates that will be maturing early 2010 and so comes the question of what to do with them.

When a certificate account comes to maturity you'll get a notice from the financial instution asking what you want to do with the funds. Usually, you'll have about 30 days to close the account or it will automatically renew.

Certificate accounts are appealing because they are safe and earn a guaranteed interest rate. For people who, as your grandfather said, "have holes in their pockets," certificates are a great way to put the money away from the temptation to spend. However, when rates are low, like they are now, a certificate just doesn't give you much bag for your buck.

So, what do you do? Consider your options.

1. Break up the funds into smaller certificates with varying maturities, a.k.a. laddering. The laddering strategy helps you take advantage of rising interest rates. Signs are pointing to a growing economy. Interest rates will rise, but maybe not until the latter half of 2010, if that soon.

Typically when you ladder certificates you'll spread the funds over accounts ranging from one to five years. But when rates are unusually low, you might consider shortening your terms to roll the money faster, thus capturing rates as they climb. So your strategy might look like this:

This isn't your typical laddering strategy, but it would move your funds quickly along and hopefully in conjunction with rising interest rates. To slow the progression, invest in longer terms earlier.

2. You opened your certificate to build savings, right? And you save to help yourself in the future, right? Well, if your certificate has matured than the future has arrived. How might these funds help you out now? If you've got debt, paying it down will free you for the future. Consider other ways this money could help you now and keep you from incurring debt.

3. Look for higher earning investment options. There is much to consider when you are looking for higher yield investments. If you are not sure where to start talk with Tom or Nelisha at the Coors Credit Union Investement and Retirement Center to consider your options.

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