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WATERVILLE – Rates have been historically low for the past 10 years. Only recently, the Fed Funds rate was increased by 25 basis points. It is likely that we will see one or two more increases of 25 basis points during 2017. Yet, the recent Fed funds increase has not had a noticeable impact on deposit rates.
Most economists are predicting slow and small increases in rates over the next two to three years max. Then rates are expected to decline again. With the future of rates so uncertain, what is a conservative investor to do?
While rates have remained low, many Certificate of Deposit investors have kept their deposits in short-term (6-12 month) CDs, waiting for rates to increase so they could reinvest at higher rates. Unfortunately, rates have not increased and some people have missed out on larger returns that could have come with longer CD terms.
Here’s an old-fashioned idea that may still have merit: CD laddering. This is the practice of breaking up your investable money into a several CD terms, usually ranging from six months up to four or five years. As shorter-term CDs come due, they are reinvested into the longest term you are using in your ladder. This creates an ongoing series of maturing CDs that can be reinvested in potentially higher-rate CDs. Even in these times if historically low rates, CD laddering can easily result in earnings as much as 10 times higher than you would get from investing in only short term CDs or a regular savings account. It’s an option to investigate the next time you talk with your banking adviser.
Kennebec Federal Savings has been providing personal banking services from its Waterville headquarters since 1936. KFS branches are conveniently located at 70 Main Street, Waterville and 11 Washington Street, Waterville. For more information about KFS, its products, and services, visit www.kfsavings.com or call 888-249-0606.
