“Laddering” Your CDs
Get the most for your money while leaving open future possibilities. It’s a highly effective strategy for anyone wanting more flexibility.
Investopedia.com explains that a CD ladder “is a strategy in which an investor divides the amount of money to be invested into equal amounts in certificates of deposit (CDs) with different maturity dates. This strategy decreases both interest rate and re-investment risks.”
In plain terms:
You decide upon an amount you want to invest, let’s say $10,000. Next, divide the total into a variety of terms – with different maturation dates. You could, for example, choose to invest $2,500 in a six-month CD; $2,500 in 12-month CD; $2,500 in a 36-month CD; and, $2,500 in a 60-month CD.
Laddering enables you to have access to cash as the shorter-term CDs come due – in case you need your money – or want to reinvest in a longer term or at a higher rate. You’re also taking advantage of today’s rates without committing your funds for an extended period.
Laddering also gives you peace of mind.
You have more flexibility while earning competitive APYs, and greater accessibility as your laddered CDs come due.