CD Laddering (introduction)
CD Laddering is an excellent way to maximize yields from bank CD rates. There are several different strategies to CD laddering that you may wish to consider. Typically a CD ladder can extend your profits by 0.25%-1.5% depending on your criteria. Another benefit from CD laddering is increased liquidity. Here are a few hypothetical situations illustrating possible advantages and strategies to CD laddering.
What is a CD Ladder?
A CD ladder is a series of staggered CD (certificate of deposit) investments. Because these investments are staggered you will encounter a matured CD at the end (or beginning) of every month.
For example, if I invested $500 every month for one year into a 12 month bank CD at the end of that year I would see an income from these investments for an entire year.
Here is how it would look:
January 2009: I invest $500 into a 12 month bank CD
February 2009: I invest $500 into a 12 month bank CD
March 2009: I invest $500 into a 12 month bank CD
April 2009: I invest $500 into a 12 month bank CD
May 2009: I invest $500 into a 12 month bank CD
June 2009: I invest $500 into a 12 month bank CD
July 2009: I invest $500 into a 12 month bank CD
August 2009: I invest $500 into a 12 month bank CD
September 2009: I invest $500 into a 12 month bank CD
October 2009: I invest $500 into a 12 month bank CD
November 2009: I invest $500 into a 12 month bank CD
December 2009: I invest $500 into a 12 month bank CD
- At this point my investments from the beginning of the year mature.
January of 2010: I receive the yield from a 12 month bank CD
February of 2010: I receive the yield from a 12 month bank CD
March of 2010: I receive the yield from a 12 month bank CD
April of 2010: I receive the yield from a 12 month bank CD
May of 2010: I receive the yield from a 12 month bank CD
June of 2010: I receive the yield from a 12 month bank CD
July of 2010: I receive the yield from a 12 month bank CD
August of 2010: I receive the yield from a 12 month bank CD
September of 2010: I receive the yield from a 12 month bank CD
October of 2010: I receive the yield from a 12 month bank CD
November of 2010: I receive the yield from a 12 month bank CD
December of 2010: I receive the yield from a 12 month bank CD
