Where to place CDs as you vary maturities

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Dear Dr. Don,
I just read a Bankrate story about building a ladder of certificates of deposit, which sounds like great advice. This involves having a portfolio of CDs with varying maturities. I was wondering whether it is a good idea to have all my CDs at the same financial institution. Or should we spread them around? What’s the downside?

— Dray Depositor

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Dear Dray,
There’s not an easy answer to your question. First, you have to weigh the convenience of having your financial business in the same place versus the benefit gained by securing the highest yields available for each rung of your CD ladder. It is cost against convenience.

Besides convenience and yield, depositors should also consider safety and the ability to get quick cash when deciding where to keep their assets. CDs don’t always offer ready liquidity because they can charge a penalty for early withdrawal. But you do have safety in your favor since deposits should be covered by the Federal Deposit Insurance Corp. or other guarantees.

In a rising interest rate environment, you could look into investing in callable CDs. You’ll get slightly higher yields because the bank has the ability to call the CD and return your money to you. You need to decide if the yield gained there is worth the risk the deposit might be returned. In a rising interest rate environment, which seems more likely now, you might not have to worry that the CD gets called.

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