Savings strategies: CD target

This is the fourth and final part of a series on strategies for saving with CDs.

 

If you’ve ever played basketball, you know there are several different shots you can take:

 

• Short layup
• Mid-range jump shot
• Long 3-pointer

 

No matter where you shoot from on a basketball court, the target is the same.

 

But no matter what type of shot you’re taking, the target (the hoop) remains the same. Comparing basketball to saving money may seem like apples and oranges. But the CD target strategy is a similar concept to the situation described above.

 

The CD target in action

 

When you use the CD target strategy, you open CDs at different times, with the goal of having all of them mature on a single target date.

 

The CD target can help you save for something specific, like a vacation, car, house, wedding, a college education or your emergency savings.

 

Imagine for instance you have a big family vacation coming up in 18 months and you want to start saving for it. You start by putting $5,000 in an 18-month CD.

 

Six months later, you have another $3,000 saved up, so you put that in a 12-month CD. Finally, six more months go by, and you have saved another $2,000 that you put into a 6-month CD.

 

By the time you’re ready to go on your vacation, all three of your CDs have matured and you have saved $10,000, plus the interest on your balance.

 

With a CD target, you'll open CDs at different times, with the goal of having them mature on a single target date.

A simple savings strategy

 

To build an effective CD target, you need to do some preplanning to make sure your CD terms line up with your target savings date. But aside from that, it’s a very simple approach.

 

No laddering, and no reinvestment decisions are required. Just save your money until your target date and use your funds for whatever you’ve been waiting for.

 

That said, if you want to continue your growth, you always have the option to let your CDs renew or reinvest your money in a longer-term CD.

 

Start your CD target today

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Catch up on the rest of the series:

PART 1: CD STRATEGY OVERVIEWPART 2: CD LADDERPart 3: CD Barbell