With yields as low as they are, have been and will continue to be, savers have headed for greener pastures in terms of yield or liquidity.
In more typical interest rate environments, CD ladders can be a great strategy for maximizing both of those: yield and liquidity. As laddered CDs mature at regular intervals, there is always cash either available or about to become available.
The Federal Reserve has, once again, pledged to keep rates at their current level until 2014. If the economy improves, their hand may be forced sooner but taking them at their word, savers have at least two years to muddle through with abysmal yields -- and hopefully no more.
According to Bankrate's rate research, savers willing to go out to five years can get yields twice those available on a 3-year CD. As of March 7, the yield on a 5-year CD was 1.15 percent while the yield on a 3-year CD was only .7 percent.
It's a risk going out to five years however. If rates do increase within two years, savers holding longer-term CDs will find themselves unhappily on the wrong side of interest rates.
With that in mind, this is how a CD ladder going out three years in 6-month increments could look, assuming $6,000 to start.
After the initial six months, the first CD comes due and the proceeds are reinvested into another 3-year CD. In another six months the one-year CD matures, the proceeds of which will go towards another 3-year CD.
As rates rise you'll be reinvesting in higher-yielding CDs and can consider lengthening the ladder to more rewarding maturities.
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