How to Build a Certificate of Deposit (CD) Ladder

How to Build a Certificate of Deposit (CD) Ladder


What Is a Certificate of Deposit Ladder?

The certificate of deposit ladder is a strategy in which an investor will divide the amount of money meant to be invested to certificates of deposit in equal amounts. The modern certificate of deposit is a saving certificate that locks in your money at a set interest rate for a certain period of time, also called a maturity date.

The CD ladder works by locking your money for a set time period, sometimes up to more than 5 years. The longer the CD’s term, the larger your deposit and the higher your rates.

How to Set Up a Certificate of Deposit (CD) Ladder?

Let’s assume that you are setting up a 5-year $5,000 CD ladder. You will divide your initial deposit into 5 equal CDs. In the first year, here’s how you could deposit your money.

$1,000 in a 5-year CD
$1,000 in a 4-year CD
$1,000 in a 3-year CD
$1,000 in a 2-year CD
$1,000 in a 1-year CD

When your 1-year CD matures, you will get $1,000 plus the interest you earned. And because it is a CD ladder, you have also worked at least part of that money into a new 5-year CD. In one year, your 2-year CD ladder will be also available to do the same. This certificate example strategy will continue to work as each initial CD matures.

Benefits of CD Ladder

  • Although your money is locked away, the interest rate of your deposit would increase and you can not take advantage of it.
  • You can use your money at frequent intervals, increasing the chance of liquidity in your deposit.
  • By using the certificate in pdf, you can also decide how you plan to split up your investments.
  • You also have the chance to select longer-term CDs with higher rates and that still have to mature on a regular basis.

Strategies for Certificate of Deposit Ladder

The CD ladder is very useful to anyone who is planning to manage his or her deposit effectively. To get the most out of your CD is to stay on top of it and monitor every change. While there is a law that requires your bank to notify you every time your certificate in word matures, it is still the best idea to do it on your own and add an extra measure of planning.

Take a look at this strategy to keep it simple.

  • Make use of the internet. These days, there are banks where you can access and manage your CD easily.
  • Create reminders. Since everyone has a smartphone today, it is a good idea to make use of the calendar in the smartphone to remind you few days before your CD is due. This way you have plenty of time to plan or decide if you want to take out your money or put it in another CD. Helpful also for your investment analysis.
  • Draw it on a paper. If you prefer a pen and paper, drawing a visual ladder of your CD is also a good idea to remind yourself. This way, you can track and manage different accounts easily.