CD Laddering
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Learn Whether a CD Laddering Strategy Is Right for You

A CD laddering strategy can be a smart choice if you want to take advantage of CD interest rates while still enjoying regular access to your money.

What is CD laddering?

The way CDs work is pretty simple: The longer you keep funds in the bank, the higher the interest rate. Essentially, you’re rewarded for committing to a longer length of time. The tradeoff is you’re unable to access those funds for anywhere from 3 months to 5 years, depending on the term you chose. That’s where CD laddering comes into play. 

With CD laddering, instead of opening one large CD, you can open CDs with lesser balances and stagger the terms, meaning they’ll mature at varying dates.  

For example, let's say you have $6,000 to deposit and your goal is to have that $6,000 plus interest at the end of 3 years.  Instead of locking it into a 36-month, you want an option that will give you a little more flexibility to access the money if needed.   One option is to open one fixed-term CD with the entire $6,000 that matures every 12 months and rolling it over to another 12-month CD as it matures, until the end of the 36 months.   

Another option you may want to consider is this CD laddering strategy:

See the quick illustration below:

CD strategies and how they work

How CD Laddering Works

If you put all the money in the 36-month CD and needed an early withdrawal, you’d owe a fee.  Instead of opting for a single lump-sum deposit into one CD with a shorter term and rolling it over each time, laddering your CDs can give you access to some of your funds at 12 months and then more at 24 months. 

Laddering CDs creates a staggered savings approach, where you have regular intervals of access to your money, while potentially yielding higher returns.  As the CDs in your CD laddering strategy mature, you can choose to withdraw it within the grace period or roll over funds into a new CD – and then the ladder continues.

But remember, if you take the money out of a CD account before it matures, you may be charged a penalty, which will lower your rate of return.   

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