What is a CD Ladder?
For starters, let’s define what we’re talking about. A CD ladder is simply a set of long(er) term CDs with staggered maturity dates. For example, you might have a set of twelve 1 year CDs, each maturing during a different month throughout the year. Alternatively, you might have five different 5 year CDs, each maturing a year apart. Regardless of how you set it up, the attraction of a CD ladder is that it allows you to retain some degree of liquidity (due to the staggered maturity dates) while earning a higher interest rate than you could otherwise get with a high yield savings account. In addition, the staggered maturity dates help smooth out interest rate fluctuations.
A CD ladder can help you earn an even higher return on your savings. A ladder consists of multiple, sequential CDs all opened at the same time. Each “rung of your ladder” is for a different CD term and your ladder can contain as few or as many rungs as you like. For example, a ladder could consist of 12, 24, 36, 48 and 60-month CDs. For a less aggressive CD ladder you can choose shorter terms – for example, a 6, 12, 18, 24 and 30-month ladder which keeps your money more readily available. Let’s say you have $10,000 to invest and want to start a 5 rung, annual ladder (12, 24, 36, 48 and 60-month CDs). You could invest $2,000 in each term. As each CD matures, re-invest the principal and interest into the longest term on your CD Ladder (in this case a 60-month CD). With this scenario, you’ll benefit by having at least $2,000 becoming available each year should you need access to your money, while at the same time having all your money in longer term CDs, which usually have a higher rate t
