Is a CD Ladder Series right for you?
If you're looking for a savings strategy with both short and long term benefits, consider Certificate of Deposit (CD) laddering. You can use CDs or IRA CDs. Whether you're brand new to CD laddering or already familiar with the concept, we will show you how this strategy works, and why you'd use it.
A CD ladder isn’t some complicated financial product. It’s just a fancy way of saying that you should divide your savings into CDs with different maturities. A CD ladder offers benefits that a long term CD does not. First, a CD Ladder offers more liquidity than a long term CD. In a CD ladder series, a CD comes to maturity more frequently, so you can access a portion of your money without paying withdrawal penalties*. As CDs come to maturity, you can choose whether to reinvest the money or to spend it according to your goals. Even more importantly, a CD ladder protects you from interest rate risk. By dividing your money into CDs with different maturities, you protect your money from interest rate movements. If interest rates go down, you still have some of your investment locked in at today’s higher interest rate. If interest rates go up, you can reinvest a mature account into a higher yielding CD.
Starting a certificate of deposit (CD) ladder is simple. The diagram and instructions below detail the process, beginning with dividing the principal and opening the initial set of CDs. In this hypothetical example we will assume that a 3-year CD best fits your needs, that you want an equal portion of your money to mature each year, and that you have $3,000 total to contribute to the CD portfolio. When you set up a CD ladder you’re anticipating lower rates in the short terms. You are trading a slight bit of rate for increased liquidity and flexibility if rates change drastically. You will see that your money will be in the highest-yield CDs after two years. Furthermore, approximately one third of your money will become available every year. This will allow you to reinvest that money elsewhere if you wish. Though we're using a 3 year ladder for our illustration, you can grow your money ever more with a longer term ladder.
Keep track of your maturities: Although we will send you a maturity notice, stay on top of your CD ladder by setting up a reminder in your calendar that will pop up a few days before your CD is due. That way you'll have plenty of time to decide if you want to take your money out or put it in another CD.
Crest Savings Bank offers CDs in a wide range of terms so you can build a CD ladder that best suits your needs.
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*CDs typically come with early withdrawal penalties, which can wipe out any returns if you need to take the money out before the term is up. So, make sure the maturities you select work with your cash needs.