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For Retirees: A Strategy for Managing CD Accounts in Today’s Low Rate Environment


The good news is that interest rates are low, so now is the perfect time to buy or refinance a home; the bad news is that interest rates are low, so if you’re looking for a risk-free investment, Certificates of Deposit (CDs) may not look as attractive as they did in the past. This is disheartening to say the least, especially if you’re a retiree on a fixed income and you’re looking to earn some extra income through no-risk investments.

With interest rates at 40-50 year lows, some might say that this is a bad time to invest in bonds or CDs as a means to subsidize your retirement income. But what if you’re nervous about the volatility of the stock market or prefer something that’s more stabile?

CDs can still be a good choice if you use a strategy known as building a CD Ladder. Five-year CDs generally offer the best return on investment, but unfortunately, most retires can’t afford to tie up principal for that long a period. The premise behind building a CD Ladder is this: you invest in a number of different term CDs, for example a 5-Year CD, 4-year CD, 3-year CD, 2-year CD and a 1-year CD.

Let’s say you have $50,000 to invest. Your initial investment might look like this:
• $10,000 in a 5-year CD
• $10,000 in a 4-year CD
• $10,000 in a 3-year CD
• $10,000 in a 2-year CD
• $10,000 in a 1-year CD
A year later, when the 1-year CD matures, you would roll the principal back into another 5-year CD. Then your ladder would look like this:
• $10,000 invested in a new 5-year CD
• $10,000 in a 5-year CD (will mature in 4 years)
• $10,000 in a 4-year CD (will mature in 3 years)
• $10,000 in a 3-year CD (will mature in 2 years)
• $10,000 in a 2-year CD (will mature in a year)
• $10,000 in a 1-year CD – cashed out and re-invested in the new 5-year CD

At the end of five years, all five CDs will have matured, and all will be reinvested in highest yield 5-year CDs that will mature on a yearly basis.

There are several advantages to this strategy. First of all, you’ll have a sense of security knowing that your principal is safe and that your money is insured for up to $250,000 through the FDIC. You’ll also be receiving a higher rate of return than you would receive if, instead of CDs, your money was invested in a high-yield savings account. And…in five years, all CDs in the initial ladder are now in the highest yield 5-year CDs.

Of course, if you need better liquidity options, you can also build a ladder with shorter term CDs, for example three months, six months and one year. As each one matures, you’d reinvest in the longest term CD.

Keep in mind that in a low interest environment, there aren’t a lot of investment options that guarantee that you’ll at least walk away with your initial investment. Interest rates will eventually go back up and with the ladder approach, you will at least be reinvesting in higher rate CDs as each lower rate CD matures.

Keep an eye on special promo account yields for savings accounts and money market accounts as well. These rates can sometimes be higher than CD accounts and provide you with better access to your money, without the penalties you will incur with early CD withdrawal.

According to Alan Bedner, Executive Vice President/Chief Financial Officer at Unity Bank, headquartered in Clinton, NJ, “Smaller community banks typically offer better yields as well as more personalized service. CDs are a good choice for retirees who really need to be in risk-free investments. Of course, it’s always best to consult with a financial planner or tax advisor prior to settling into any type of investment because you could actually be better off with equity securities or variable rate annuities. But if you decide to invest in CDs, laddering is certainly something to consider as a means to ‘ride out’ the historic low yield environment we’re currently experiencing.”

Unity Bank has branches in Hunterdon, Middlesex, Somerset, Union and Warren counties in New Jersey, and Northampton County in Pennsylvania. The bank began as First Community Bank in 1991 with two branches and thirty employees. It now has over one hundred and sixty employees.

For more information about Unity Bank, call Rosemary Fellner at 800.618.BANK(2265), or visit


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