Now’s the Time to Let CDs Roll With Market Punches


About $100 billion worth of certificates of deposit will mature in April, the most popular month for CD investing.

This is money that has stayed at the bank despite all the calls exhorting it to move to higher-yielding bond, stock and mutual fund investing. Perhaps now is a good time to just roll it over and keep it there.

Here are some other possibilities for CD savers now making this decision.

* Ladder maturities. If we’re in for a long, slow move upward in interest rates, it’s not the time to lock up all of your money. CD savers can minimize their interest rate risk by spreading the maturities of their CDs.


A good plan involves having your money divided among four certificates that come due at six-month intervals over a two-year period. If you currently have all your money coming due, divide it into four CDs with maturities of six months, one year, 18 months and 24 months.

Then, as each comes due, roll it over for two years.

* Cash is no longer trash, says Robert Brown, chief economist of Ferris Baker Watts and a bear’s bear. What he means is stock and bond returns both are likely to come down and interest rates likely to keep moving up.

If he’s right, the best place to keep that money might be in a boring, 3%-paying (if you’re lucky) money market mutual fund or FDIC-insured money market deposit account.


Money there is totally liquid and ready for you to invest longer term when conditions warrant.

* Look long term and dabble in investing. If you still have all of your money tied up at the bank, consider putting a toe in mutual fund waters, with funds you won’t need for five years. Even with experts predicting a riskier market, long-term returns in stocks and bonds will always beat the bank. Look for funds that have very low betas--a measure of volatility--and reinvest all of your dividends.

* Buy Treasury bills. They’re super safe, tend to pay a fraction better than bank certificates, and pay interest that is free of state and local income taxes. Again, watch your maturities.

* Look for stocks that pay you to hold them, but that aren’t overly interest-rate dependent. That means for the time being avoid the big dividend stocks like utilities.

Warren Spitz, portfolio manager for Prudential Securities Equity Income Fund, says those companies that do well in the growth part of economic cycles--such as chemicals, insurance, natural gas--will do well. Pick those that have a strong dividend-paying history.

* Look for funds in a new category: Ultra-short maturity funds come between money market funds and short-term bond funds, according to Lipper Analytical Services.