SMCU Money Masters - Winter 2008 - (Page 13)

member tips Certificate Laddering Climb the Ladder to Financial Success There are trends in the way we dress, the way we eat and the way we speak. And yes — even in the way we invest. While some people are in a position to take serious risks with their investments, others prefer to take a more conservative approach. They want to get the most out of their money while eliminating risk and maintaining a degree of liquidity. To achieve this goal, many smart money managers are employing a strategy called certificate laddering. Here’s an example of how it works. Let’s say you have $25,000 sitting either in a share account, a money market account, a coffee can buried in the backyard, or under your mattress. You’d like to put that money to work for you in a way that will maximize your interest and minimize your risk. To get started, use it to purchase five certificates: $5,000 for a 12-month term, $5,000 for a 24-month term, $5,000 for a 36-month term, $5,000 for a 48-month term, and $5,000 for a 60-month term. Each certificate represents the rung of a ladder, carrying you higher and higher toward your financial goals. When each certificate reaches its maturity date, roll the funds over for five years. It’s important to select the same five-year term for each one. In that way, after five years, you’ll have one certificate maturing every year. Of course, you can select any term that you choose, as long as it’s the same for each certificate. By using certificate laddering, you can: • Enjoy the stability of regular income. • Avoid tying up your money for long periods of time. • Safeguard against fluctuating interest rates because of the diversity of your certificates. • Maintain access to 20 percent of your money each year. Perhaps most important of all, credit union certificates are federally insured to at least $100,000 by the National Credit Union Administration (NCUA), a U.S. government agency that boasts the healthiest of all federal deposit insurance funds. So you can be sure that your hard-earned cash will be there tomorrow … and the next day … and the next. And there’s not an investment on the planet that can make a promise like that. If you’re looking for a secure way to make your money earn more money, consider certificate laddering. It just might take you to the top sooner than expected. The article is not intended to provide specific advice for any individual. Contact a member service representative at SMCU to set up a customized savings program for you. Based on a five-year rollover formula, this a picture of when your certificates will mature over time: Amount of Certificate $5,000 $5,000 $5,000 $5,000 $5,000 Open Date 2008 2008 2008 2008 2008 Maturity Date 2009 2010 2011 2012 2013 Maturity Date of 5-Year Rollover 2014 2015 2016 2017 2018 WINTER 08 13

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SMCU Money Masters - Winter 2008 Contents Tech Tips Community Connection What’s Next? Motley Fool: A Tale of Two Borrowers Jean Chatzky: Extreme Jobs Member Tips Money Management

SMCU Money Masters - Winter 2008

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