CD ladders offer the safety and security found in CD investments with FDIC insurance and bank CDs usually earn higher interest rates than standard bank savings accounts and money market accounts. Savers and investors can create a CD Ladder for savings, bank CD investments or cash reserves. CD laddering is a good investment option for a savings portfolio that will deliver both interest income and liquidity. The basics of a CD ladder involves investing in a collection of bank CDs bought at regular intervals so that the CDs will mature at regular intervals. With a CD ladder, the CD account holder doesn't invest all of their CD money at one low rate of return but rather spreads out the bank CDs to cover different maturities and different CD interest rates. Laddering a CD portfolio can be similar to dollar cost averaging that is frequently used to invest in stocks. A CD ladder is a safe, low risk strategy to increase bank CD yields. CD ladders are a great way to diversify investment portfolios and even a six month CD ladder can generate a good increase in the average yield earned with bank CDs.
 

CD Ladder Basics

CD ladders offer a safe and secure way to increase the rate of return provided by certificates of deposit without giving up liquidity or easy access to the invested funds.

Bank CDs often pay the highest interest rate that is available on safe and secure assets. Other than Treasury securities, bank CDs are one of the safest investments available. FDIC insurance provides the safety net.

The price for the higher interest rate and safety with bank CDs is a limited amount of liquidity. Most bank CDs cannot be redeemed or cashed in without a prepayment penalty. Liquidity can be managed by investing in only short term bank CDs. However, most bank CDs pay a higher interest rate the longer the term to maturity.

The dilemma for the CD investor that does not have a CD ladder is that the longer term CD holds the best rates but provides the least amount of access to their money. Conversely, the shorter term bank CDs offer better liquidity but do not provide a good rate of return.

With a CD Ladder Strategy, investors don’t purchase a single CD for a set amount of time. Instead, the CD buyer ladders the money invested over different maturities. The CD ladder is designed to get the benefits of liquidity without penalty and at the same time earn a high rate of return. With a CD ladder, investors can purchase multiple bank CD investments to their advantage.

The basic premise of the CD ladder is to purchase or invest in staggered maturities for multiple CDs. Once the CD ladder is in place, if CD interest rates fall, the CD investor has locked in today’s higher yields for an extended period of time and if short term CD interest rates start to rise, the CD investor has the ability to take advantage of higher yields as the shorter term CDs mature.

With a CD ladder, the investor purchases CDs with varying maturity dates. For example, to build a CD ladder an investor may purchase a bank CD that matures in three months, another bank CD that matures in six months, yet another CD that matures in one year, and then one that matures in two years.

By building this CD ladder, the investor will always have a CD maturing within a short period of time. There are many options when it comes to CDs and CD ladders. The investor building the CD ladder can choose to set up the CDs to mature even more frequently or run for a longer initial period of time. For instance the CDs could be purchased that mature in six months, one year, two years and five years or CDs that mature every year for five years.

Building a CD ladder is one of the most effective ways to diversify investments across a wide range of interest rates. There are very few limitations to the amount of CDs that can be held or the frequency of terms or maturities an investor can choose to hold in a CD ladder.

For more information on the best CD rates by term refer to the following pages; 6 month CD rates, 1 year CD rates, 2 year CD rates and 5 year CD rates. For more information on current mortgage rates refer to the 30 year mortagge rates table or the 15 year mortgage rates table. For state CD rates refer to the pages identified by state such as CD rates California, CD rates New Jersey, CD rates New York, CD rates Florida, CD rates Washington, CD rates Illinois, CD rates Virginia and more.