Building a creative CD ladder
Dear Dr. Don,
I want to invest in a CD ladder, but when one CD matures, I only want to reinvest a portion of the money. I am interested in a five-year CD ladder. My questions are: Where do I find the best CDs, and what kind of calculator can I purchase to calculate the numbers for me?
-- James Joiner
Constructing a CD ladder has you dividing your investment among different CD maturities when you first invest, out to an investment horizon. The classic construction of a CD ladder has the rungs, or CDs, of equal size and spacing, but you can get creative in how you design your ladder.
Compare CD and investment rates
For example, if you think CD rates are currently low and you expect them to head higher, maybe you want an extension ladder, where you have the rungs go further out over time. You may find that a high-yield savings account gives you a yield comparable to what you can earn on a short-term CD so you can keep your short-term monies in that account and pick up liquidity without sacrificing yield.
Before you go shopping for the CDs, you should decide how aggressive you want to be in chasing yield. Do you want to invest with a local bank, or are you OK with dealing with Internet banks and banks around the country? Do you want to have all the CDs at one bank for convenience, or are you willing to have deposits at multiple financial institutions? Bankrate can help you shop rates, in your market and nationwide using its compare rates feature.
There's no issue with you reinvesting only part of the maturing CD. People invest to accomplish future financial goals. Needing some of the proceeds over time is expected. As to a calculator, Bankrate has a CD ladder calculator along with other savings calculators on its savings calculator page. I don't see a need to buy a calculator. There's also a lot you can do with an Excel spreadsheet to keep track of your CD ladder and your wealth.
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