 In
today's volatile markets, a wise
investor looks for ways to balance
out earnings
without tying up all their investment
funds for long periods of time. Many
investors are uneasy with the stock
market's unpredictable performance.
As a rule, shareholders want to keep
a portion of their portfolio liquid.
To maximize the return on your money, you might like to try an option called laddering. To understand this strategy you will need a basic understanding of share certificates.
What is a share certificate?
A share certificate is a credit union
account that earns dividends on the
principal placed with the credit union.
The share certificate is purchased
for a fixed term. These terms may range
from 30 days to 6 years in which you,
the shareholder, agree to give the
credit union your money for the agreed
period of time. Dividends are compounded and credited monthly. Keep in mind; there are penalties
for early withdrawal and fees may reduce earnings. In addition,
share certificates are federally insured
to at least $100,000 by the National Credit
Union Administration and backed by the full faith and credit of the United States Government.
How does a laddering strategy work? A share certificate ladder is made up by purchasing several share certificates at one time, or over a period of time, with different maturity dates. One example of laddering your share certificates is to have share certificates with maturity dates of one year, two years, three years, four years, and five-years. These five investments make up the rungs of your ladder, with one certificate maturing every year for the next five years.
The following is an
example of "laddering" share
certificates:
Let’s assume you have $50,000 to invest. You choose to open the five share certificates for $10,000 each as follows:
- Share Certificate 1 $10,000: 1-Year Term
- Share Certificate 2 $10,000: 2-Year Term
- Share Certificate 3 $10,000: 3-Year Term
- Share Certificate 4 $10,000: 4-Year Term
- Share Certificate 5 $10,000: 5-Year Term
At the point of share
certificate number one's maturity date,
it would be renewed for five more years.
Share certificates two and three would
also be renewed for five more years
at the end of their term. Share certificate
number five is already a five-year
certificate. By laddering your share
certificates in this manner you will
have the best possible rates of return
with a share certificate maturing every
year. This strategy allows you to take
advantage of higher rates normally
associated with longer-term share certificates
while maintaining more frequent access
to a portion of your funds. If you
do not need the certificate funds,
re-invest the money into a new share
certificate for the longest term possible.
Taking action to re-invest your savings
will in turn keep your ladder growing.
Another advantage of laddering your share certificates is that over time the rate of return typically evens out the high peaks and low valleys that interest rate cycles historically take. Currently financial institutions are paying some of the highest certificate share rates we have seen in the last decade.
Our mission is to improve our members' financial well-being.
  
Your savings federally insured to at least $100,000
|
