Certificate of deposit investing strategies

Strategy bullets
With a bullet strategy, you concentrate your money in one particular maturity. You would stagger purchases of CDs but they'd all mature around the same time. By staggering the purchases you reduce the risk of buying all the CDs when rates are at their lowest. This is a good strategy when you're saving money for a specific goal such as college or a new car purchase that you know you'll need in four or five years.

Strategy barbell
The barbell strategy allows you to take advantage of high yields at some point on the yield curve while hedging your bet at another point. All that means is you use some money to buy CDs with longer maturities because they're paying the best interest, and you spend the rest of your money on short-term CDs so you have some liquidity and can take advantage of possible rate changes.

Strategy CDARS
Normally, bank deposits are insured up to $100,000 by the Federal Deposit Insurance Corporation, or FDIC, and up to $250,000 in the case of retirement accounts. CDARS, a deposit placement service, gives you a way to invest more than $100,000 in CDs and have the full amount insured. Certificate of Deposit Account Registry Service, pronounced "cedars," is run by a company called Promontory Interfinancial Network. Banks that subscribe to CDARS can give individual CD buyers up to $10 million in FDIC coverage. Here's how it works.

You have $130,000 you want to invest in bank CDs. You get $95,000 worth of CDs from your bank, bank A, which sends the remaining $35,000 to a company that knows bank B will issue you a CD for the remaining $35,000. In return, bank B buys $35,000 in CDs for its customers from bank A. You receive one consolidated statement from your bank detailing your CDs.

Promontory Interfinancial Network acts as a clearinghouse of sorts, matching deposits from one institution with another so funds that a bank places with CDARS essentially remain on the bank's balance sheet.

Your bank sets the interest rate for the CDs bought through other banks, and that can be a drawback. CDARS gives you convenience -- you don't have to open accounts at multiple banks to make sure your CD purchases are covered by the FDIC. But the price you pay for that convenience is that you can miss out on higher interest rates offered by banks other than your own.

Another factor is that banks pay a fee to join the network and then pay transaction fees. Some banks pass those costs on to CD buyers by reducing the interest rate.

Promontory says there are approximately 700 banks across the country offering CDARS.