What is a CD ladder?
Setting up a CD ladder is easy. Rather than depositing money in a single CD, you deposit money in several CDs with staggered maturity dates. When the CDs with short-term dates mature, you can reinvest that money in another CD to extend the ladder until you have met your savings goal. Click here to view an example of how to set up a CD ladder.
What are the benefits of a CD ladder?
NerdWallet.com explains that investing in a CD ladder may help you get a better return on your money versus depositing it all in one CD. The benefits of a CD ladder include:
- Access to cash at different intervals. Because you’re investing in several different CDs with short-term to long-term maturity rates, you’ll have access to cash sooner than if you deposited all your money in one long-term CD. When each CD matures, you can choose to reinvest it in another CD or spend it as you wish.
- You can take advantage of future interest rates. If interest rates rise, you can take advantage of them by reinvesting your money when your next short-term CD matures, rather than having to wait for a long-term maturity date.
- A CD ladder gives you more options. Investing your money across multiple CDs allows you to choose between several different interest rates. You can also adjust your ladder strategy as your CDs begin to mature, in case you find you need access to your money earlier than you had planned.