How to create a CD ladder



To maximize your CD returns, creating a CD ladder, well it's definitely the way to go. And with a CD ladder your money is spread over a number of CDs that mature at different times.

The first order of business is to decide, well, how long do you want your ladder to be. One consideration is when do you need the money because CDs usually come with early withdrawal penalties. Another consideration when choosing the length of your CD ladder is the interest rate environment. If short-term interest rates as set by the Federal Reserve are very low, well a shorter CD ladder may be more appropriate for you.

Alright, here's an example of a CD ladder. Let's say you've got $5,000. Alright, you buy five $1,000 CDs one year apart up to five years. Now the shortest rung on the ladder would be a 1-year CD; the longest would be a 5-year CD. Your CDs don't need to be from the same bank either, so you want to shop around for the highest rates.

A callable CD is one that the bank can recall if interest rates go down. You want to avoid using them in your CD ladder because if a CD is called it's going to totally disrupt your ladder strategy.

Now, interest rates are nearly always higher on longer maturities. And one of the major benefits of an ongoing CD ladder is that after the first cycle, well the ladder is made up of only the most rewarding maturities. Also, because a CD is always about the mature, well, there's some liquidity for reinvestment.

In our example, the shortest rung in the ladder is going to be the 1-year CD. Now after it matures, well the investor would buy another 5-year CD. And as the second shortest CD matures, well they would roll that money back into yet another 5-year CD. In this scenario, at the end of the five years, well all of the investments are in the highest yielding CD bracket, yet maturing in 1-year increments. Oh, and remember you've reinvested the principal and the interest, so your investment is growing. For great rates on CDs, visit



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