What is CD ladder? – CBS News

A Certificate of Deposit (CD) A savings account that is Offers several unique benefits. Unlike regular and high-yield savings accounts, CD interest rate is fixed, so you will continue to earn the same amount even if the interest rate drops. And this rate is often more than equal High Yield Savings Account Offer

In exchange for these benefits, you agree to keep money in your account for a certain period of time (usually six months to five years). If you withdraw the funds before the expiry of this period, you will have to charge a penalty. Penalty amounts vary by institution, but they can easily wipe out the interest earned on your money.

Locking up your money for a period of time can be helpful if you want to grow your savings without the temptation to dip into them right away. But if you need the money quickly – or if you want to access regular returns – this can be a drawback.

One way to get around early withdrawal penalties is to ladder CDs. In this article, we’ll explore what CD laddering is, how it works, and how to build your own CD ladder.

To find out if a CD is right for you, check out current CD rates here.

What is CD ladder?

CD laddering is splitting your deposit into several CDs with staggered term lengths. That way, your CDs reach maturity at different times, giving you regular access to your funds and allowing you to continue earning interest on long-term CDs (which have higher rates).

A traditional CD ladder consists of five “rings” (CD accounts) that mature over five years, but you can tailor your ladder to your needs.

Explore current CD rates now to see how much you could earn

How the CD ladder works

Let’s say you have $2,000 to invest in CDs. To build a CD ladder, you can invest it as follows (we’re using the highest interest rate available for the week of April 11, 2023):

• $400 in one Three months CD 4.75% interest
• $400 in one Six months CD 5.25% interest
• $400 in one One year CD 5.25% interest
• $400 in one Two year CD 5.35% interest
• $400 in one Three year CD 5.35% interest

Over the next three years, each CD will mature at the end of its term. You can then cash out the funds or reinvest them in a new CD with a higher interest rate, adding another rung to your ladder and your earnings.

Note that you don’t have to split your deposit equally. For example, if one of your CDs offers a higher interest rate than another, you can keep more money in that account. Or, if you want to access more money sooner, you can frontload your ladder by investing more in short-term accounts. Play around with different structures to see what works best for your goals.

Also, remember you don’t have to open your CD at the same bank or credit union. By shopping around for best rateYou can maximize your earnings from your CD ladder.

Bottom line

If you’re looking for a predictable return on your investment, a CD ladder can be a great strategy. This allows you to enjoy regular access to funds provided by short-term CDs and higher interest rates on long-term ones As with any financial product, be sure to do your homework and compare your CD options to lock in the highest rate possible.