What is a CD Ladder?
A CD (Certificate of Deposit) ladder is an investment strategy where you divide your total investment across multiple CDs with different maturity dates. This approach provides regular access to your funds while still earning competitive interest rates on longer-term CDs.
How Does a CD Ladder Work?
Instead of putting all your money in one CD, you split it into equal portions and invest in CDs with staggered terms (e.g., 1-year, 2-year, 3-year, 4-year, and 5-year CDs). When the shortest-term CD matures, you reinvest it in the longest term to maintain the ladder structure.
Benefits of CD Laddering
- Regular Liquidity: You have access to a portion of your money each year without paying early withdrawal penalties.
- Higher Returns: Long-term CDs typically offer higher interest rates than short-term ones.
- Flexibility: If rates rise, you can reinvest maturing CDs at the new higher rates.
- Risk Management: You're not locked into one rate for your entire investment.
How to Use This Calculator
- Enter your total investment amount
- Select the number of rungs (CDs) in your ladder
- Enter the current APY rates for each CD term
- Click "Calculate" to see your ladder breakdown
Tips for Building a CD Ladder
- Shop around for the best CD rates from different banks and credit unions
- Consider online banks, which often offer higher rates
- Factor in early withdrawal penalties when comparing CDs
- Keep track of maturity dates to reinvest promptly
