When most people hear the words “certificate of deposit,” they think about an investment that keeps your funds locked up for several months, perhaps even several years. While it is true that many credit unions and bank offer long-term CDs with terms longer than a year, you can also find many CDs with terms of 11 months or less. These are known as short term CDs.

A short-term CD is almost identical to its long-term siblings, but they are different enough that you’ll need to think about using them differently than you would a long-term CD. The more you’re aware of how to take advantage of a short term CDs features, the better able you’ll be to use these accounts to reach your financial goals.

What are the best short term CD strategies?

Save for a Short Term Goal

Saving for a financial goal is one of the best ways to use a CD. In addition to getting a better interest rate, you also ensure you won’t be tempted to use that money for something else. You can even calculate how much money you’ll have when the CD matures.

Most people tend to think of putting money in CDs for long term goals, but the truth is a CD can also help you reach those short term financial goals you have, like

• financing a summer vacation
• making a down payment on a new car
• buying a new appliance

 Once you’ve saved up enough to make the minimum deposit on a CD, open a short term CD and put your money to work for you.

If you plan to reach your financial goal by a certain date (like when you make your goals SMART), you can choose a short term CD that will mature close to the date you chose. If you don’t have a specific date, though, you can always select one of the shorter terms, like three months, and have it automatically renew until you’re ready to use the money in the CD.

Get started setting financial goals today!

Store a Windfall

If you’re lucky enough to get some extra money that you weren’t expecting, you probably won’t want to spend it until you’ve had some time to think about the best ways to use it. Instead of keeping that money in a traditional savings account, though, why not put it in a CD? Similar to saving money for a financial goal, you won’t be tempted to make any impulse purchases, and the higher interest rate will give you even more money to put toward your financial goals, or at least a reward for yourself for being so clever.

Create a CD Ladder

Where short-term CDs really shine, though, is when you use them in a CD ladder. This is a savings strategy that involves creating several CDs with different terms, each CD representing a rung on a ladder. When the CD with the shortest term expires, you can reinvest it either as another short term CD or as a long term CD to take advantage of a higher interest rate. There’s an almost infinite number of ways to configure a CD ladder, and you can use this flexibility to create a CD ladder that balances high interest rates with giving you regular access to at least part of your money.

Short term CDs are an essential part of any CD ladder strategy. They help keep a portion of your funds available while you’re opening more long-term CDs, and they also give your CD ladder the flexibility to take advantage of higher interest rates when they appear.

Got questions about short term CDs? Ask us! 

Create Your Short-Term CD Strategy With First Alliance Credit Union

Short term CDs can play an important role in your path to financial success, but you have to know how to use them effectively. You may want to open one to store money you’ve been saving for a short term goal, for instance, or you could place a windfall you’ve received into it. You can even use short term CDs as the first rungs on a CD ladder.

If you’d like to use short term CDs as part of your financial strategy, become a member of First Alliance Credit Union today and talk with a member advisor about opening a CD account. You can select from terms that range from 6 months to 60 months, and use our online banking platform and mobile app to track the balance of each CD you open. You can even use a traditional savings account to store money until you're ready to use it to fund a CD.