How To Build and Maintain CD Ladders

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How to Build and Maintain a CD Ladder
Many people prefer to keep a certain amount of cash in their investment portfolio, especially when investing for periods of 5 years or less. However, savings accounts do not always give the best return on investment for cash. Certificates of Deposit (CD) usually offer better interest rates than savings accounts because a CD guarantees the…

Many people prefer to keep a certain amount of cash in their investment portfolio, especially when investing for periods of 5 years or less.

However, savings accounts do not always give the best return on investment for cash.

Certificates of Deposit (CD) usually offer better interest rates than savings accounts because a CD guarantees the bank access to your money for a certain time period. This allows the banks to lend your money to other people and earn a profit.

The only problem with CDs is liquidity – you must leave the money in the CD until it matures, or you face an early withdrawal penalty.

However, there are options to increase your access to your money without sacrificing access to higher interest rates as they come along.

How to Build a CD Ladder: One CD At A Time

Building a CD ladder is a simple and effective method of investing your money at better interest rates while maintaining some access to the money.

stacking CDs to create a CD Ladder

CDs aren’t the best investment for people looking to make a lot of money – even at the best of times they probably only just keep pace with inflation.

But keeping some of your investments in cash can help smooth your returns and mitigate against large losses as we have recently seen in the world markets.

The best part of having a 5-year CD ladder is that I can save money at better rates than I can in a savings account and I am never more than 12 months away from access to some of my money.

Let’s use a 5-year ladder as an example.

In year 1 you invest in 5 separate CDs, one each for lengths of 1, 2, 3, 4, and 5 years.

At the end of each year, you reinvest the money into another 5-year CD (unless the money is needed for other purposes).

Here is an example:

 CD #1CD #2CD #3CD #4CD #5
Year 11-Year2-Year3-Year4-Year5-Year
Year 22-Year3-Year4-Year5-Year5-Year
Year 33-Year4-Year5-Year5-Year5-Year
Year 44-Year5-Year5-Year5-Year5-Year
Year 55-Year5-Year5-Year5-Year5-Year

In a 5-year CD ladder, one-fifth of the total investment is available once each year.

This gives the investor the option of rolling the CD over or using the money if needed. It also helps smooth the investor’s return on investment over a long time period. If the rates are good (as they are now) it allows the investor to lock in favorable returns for a set amount of time, which savings accounts do not allow.

CD ladders do not have to be built on a 5-year pattern. Some people use CDs for their emergency funds and base it on a 12-month rolling schedule.

This way, they know they will never be more than a few weeks away from access to at least some of their money.

CD ladders may not be the best investment for everyone, but if you have some cash in your savings account that you will probably not need for a set amount of time, then building a CD ladder may be a good way for you to lock in higher interest rates and earn more money than you would in a savings account.

There are many different CD options out there that could be best for you and your needs. Make sure to check out all your options before making your final decision.

Where to Build a CD Ladder

Using a CD Ladder is a great way to earn more money than you can in a savings account, but still maintain access to your money at short intervals.

Most banks offer CDs, but not all banks are created equal. Many online banks offer much higher interest rates than brick and mortar banks. It pays to shop around.

We maintain a list of high interest CD rates on our website. But you can also use the following chart to help you find banks that offer some of the highest CD rates in the nation.

Are CDs Right For You?

As with all investment decisions, that is up to you. If interested you could look into CD Rates at some of the top tier online banks, including Discover Bank, Ally Bank, FNBO Direct, and others.

My wife and I have a sufficient emergency fund and do not have a pressing need for the money we put into our CDs.

The money we invested in our CD ladder is for an intermediate length of time (actually an unknown length of time), so we do not wish to expose it to the volatility of the stock markets.

Please do further research and base your investment decisions on your personal needs and risk tolerance.




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About Ryan Guina

Ryan Guina is the founder and editor of Cash Money Life. He is a writer, small business owner, and entrepreneur. He served over 6 years on active duty in the USAF and is a current member of the IL Air National Guard.

Ryan started Cash Money Life in 2007 after separating from active duty military service and has been writing about financial, small business, and military benefits topics since then. He also writes about military money topics and military and veterans benefits at The Military Wallet.

Ryan uses Personal Capital to track and manage his finances. Personal Capital is a free software program that allows him to track his net worth, balance his investment portfolio, track his income and expenses, and much more. You can open a free account here.

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  1. Ryan says

    Nice information, Free From Broke. It is very important to consider the current rates when you start a CD ladder, and had the rates not been where they are a couple weeks ago, my wife and I would not have built the CD ladder. But, the rates we got were between 4.91-5.16%, which we felt was good enough for us to lock into for several years. As with any investment, it is possible we may not get the best rate of return possible (rates could go through the roof like they did in the late 70’s, early 80’s), but then again, they could drop back down to 2-3% like they were a few years ago. We were comfortable at these rates, and I think we’ll be fine. Thanks for the comment. 🙂

  2. Dividend Growth Investor says

    That’s an interesting article. You still keep flexibility in case rates go up with a 5-10 year ladder, yet you can adjust even if rates start dropping as well..

  3. Ryan says

    David: Not all banks offer CDs for every time frame, but you can easily create a CD ladder if you are willing to get creative on your first purchase.

    In year one, buy CDs of these time frames: two 1 year CDs, one 2 yr CD, one 3 yr CD, and a 5 yr CD.

    In your second year (after your two 1 yr CDs expire), you will need to buy a 3 yr CD and a 5 year CD. This will put you on schedule for a 5 year CD ladder. Then, each year when your CD matures, you will need to buy a new 5 year CD.

    Good luck!

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