Whatever you’re saving for, certificates of deposit (CDs)—and by extension CD ladders—can be a smart investment. CDs traditionally offer the highest interest rates of government-insured savings products. Simply put, a CD ladder means investing in a series of CDs with escalating terms that keep your interest climbing.
Example of a CD ladder
- Open five CDs ranging from 1 year to 5 years
- When the 1-year CD matures, re-invest it into a 5-year CD
- When the 2-year CD matures, re-invest it into a 5-year CD
- Continue re-investing each original CD into a 5-year CD
Benefits of a CD Ladder
Control: Decide how much money to invest in each CD and the timeframe for each CD based on your financial strategy and needs.
Accessibility: Cash will be available at frequent, set intervals.
Responsiveness: Take advantage of short-term interest rates by reinvesting proceeds from maturing CDs into newer ones with higher rates.
Safety: If interest rates fall, a portion of your money will continue to be invested in long-term CDs that deliver higher rates.