CD investments can be made as a single account or by using a number of different investment strategies.  Bank CD investors can simply buy one, two or more certificates that meet their need for yield or investment diversification or an investor can get involved in a more intricate strategy of buying CDs with different maturities in sequence which is referred to as a CD ladder or still yet they can buy bank CDs that establish a barbell investment strategy.

A barbell strategy is used to maximize the benefits from the CD accounts targeting the maximum yield while maintaining liquidity.  When investing in CDs with a barbell strategy, the account holder will buy both short term certificates as well as long term certificates without holding any midterm CDs.  The reason for this strategy is that it allows some of the bank CDs to achieve high yields, the longer term certificates, while the other portion has less risk and more liquidity.

The name for this investment strategy comes from the shape of the account holdings if they were laid out on a time horizon scale.  The shape of the CD investments over time will show a bulge on one side representing the short term CDs and a similar bulge on the other side representing the long term CDs which should reflect the shape of a barbell.

A number of different bank CD terms or maturities can be used for either the short term or long term CDs.  The most important criteria are to keep the dates of maturities either very close together at the short end as well as at long end.  For example, an investor might be investing in a three month term CD as well as a three year term CD under this strategy or a six month CD and a five year CD or similar term combinations.   Both sides of the barbell, the different term CDs, need not be equally weighted with same total investment amount.

As the short term bank CDs reach maturity, the account holder can decide how to invest funds including allocating the funds to different term CDs or new short term certifies to maintain the same amount of money in the overall investment account strategy.

Two benefits to this CD investment strategy is that it allows the account holder to take advantage of bank CD rates when they’re high, without limiting financial flexibility and by allocating only part of a bank CD portfolio in long term certificates the investor can help reduce the risk associated with potentially rising interest rates in the short term.

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