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Common Cents departments
Mar/Apr 2010 Issue

Make the climb to financial success

It’s hard to beat the rock-solid security of certificates of deposit (CDs). Because they aren’t subject to the wild swings of the stock market, they can add steady returns to your investment portfolio.

The key is having a strategy that maximizes your returns.

With a “CD ladder,” your money is spread among CDs with a variety of maturity dates. Here’s how it works.

Using a five-year ladder and $20,000 to invest as an example, the investor has five “rungs” of $4,000 each. For the first rung, put $4,000 in a one-year CD. For the second rung, put $4,000 in a two-year CD continuing up the ladder to $4,000 in a five-year CD.

In 12 months, the one-year CD matures. If you do not need the money for immediate needs, take that $4,000 plus earnings and roll it over into a new five-year certificate.

With a CD ladder, the investor always replaces the rung that’s the farthest out (the certificate with the longest maturity). The advantage: If the economy is slumping and interest rates are low one year, only a portion of the investment is at the lower rate.

The “length” of the ladder also can be adjusted. In a low-rate environment, keep your ladder short, creating a one-year ladder with four rungs (three, six, nine and 12 months).

Remember that CDs come with early withdrawal penalties, which can wipe out any returns, so select the maturities that match your cash needs. And be assured that investments are covered by the Federal Deposit Insurance Corporation (FDIC) from $100,000 to $250,000 until the end of 2013. Call (888) 728-3230 for more information on CD ladders.

Five financial tips for couples

Money is the one thing couples say they argue about the most in their marriage. In fact, 54 percent of American couples say they disagree “a lot” about finances.

Avoid marital cash clashes by following these five tips:

  • Find something you can agree on. Focus on the bigger picture, instead of everyday money matters.
  • Save a percentage of your income. Ten percent of net pay is a good starting point.
  • Make it automatic. By automating savings, you remove the potential for arguments.
  • Handle debt as a couple. Pay off high-interest credit cards first, and send in payments every 14 days.
  • Be faithful. Keeping financial secrets will destroy trust.
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