In recent months, I’ve assisted clients seeking guarantees and a reasonable interest rate. We have seen shorter term interest rates move higher over the past year. In certain client situations, guaranteed interest fits the bill perfectly!
There has always been a relationship between your chosen time frame and the rate of interest you receive. If you deposit money for a 4-year period of time, you’ll likely get a higher interest rate than depositing money for two years at the same financial institution.
We have put together fixed interest “laddered” CD’s, bonds, or fixed annuities for clients seeking appropriate liquidity and guarantees. An example of a fixed interest 3-year “ladder” would be committing $25,000 to a 1-year term, $25,000 to a 2-year term, and $25,000 to a 3-year term. The longer the term, the higher the interest rate.
A client would have a significant chunk of money coming due every year if wanted for a financial objective. When the 1-year money comes due, and is not needed for an objective, then that chunk of money would be deposited for a 3-year time frame. Your interest rate would be higher with a 3-year versus a 1-year time frame.
You retain access to a chunk of money in one year because the original 2-year chunk of money is now one year from being available! You eventually have all three chunks of money earning a 3-year interest rate, while having a large chunk of cash available each year!
This laddering strategy can be implemented with any time frame, depending on the best interests of your financial situation. Interest rates fluctuate all the time, but as of this writing, you may earn 2-5% depending on maturity and chosen strategy.
When you have a guaranteed principle and a fixed rate, it is not necessary to have that money professionally managed. Therefore, you do not pay any fees or expenses to hold on till the end of your chosen time frame. Gross return equals net return! For many people, possibly you, this can be a good option for a portion of your portfolio.
Guarantees are subject to the claims paying ability of the issuing entity.
Some structured certificates of deposit (“CDs”) may contain language regarding FDIC insurance. There should be no inference drawn regarding the applicability of FDIC insurance with structured investments, as only structured CDs may contain FDIC insurance. Structured notes and securities do not contain any FDIC insurance.