CD Laddering Basics
Investing in Certificates of Deposit (CDs) is a good option when you are unwilling to take high risk and are directed toward the short-term.
If you have already decided that CDs would be a very appropriate investment option for your financial situation, then it may be even better to consider investing in laddering CDs. Laddering CDs will enhance your CD investment by reducing your risk exposure and increase your returns without losing the possibility of access to some of your money.
What is CD Laddering
CD Laddering represents the simultaneous purchase of several CDs that mature at different times.
This means that if you invest in one-year, two-year, three-year, and four-year CDs you will have a maturing CD every year. After a CD matures you will be able to renew it into a new CD with appropriate maturing term and rate.
How to Ladder CDs
Make a research on the CD rates and choose a bank that offers the best deals for your needs. Purchase your chosen number of CDs with different maturity dates so that you will have a maturing CD every year.
Once your shortest-term CD matures, roll it over into a new CD for a term of your choice. When the second CD matures, roll it again for the same term you have chosen for your first CD. The key is to apply the same term as the one you have begun with for all of the CDs in your ladder. As a result you will not lock all of your money over the long-term and continue to generate good interest.
The major benefit of laddering of certificates of deposit is that you will have access to some of your money and at the same time you will insure yourself against the fluctuations of the interest rates.
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