How CD Laddering Works
You have both short-term and long-term goals. You want to be able to save your money to achieve these goals. You want growth, and you also want to be able to access your money when you need it.
Sometimes it’s hard to find the specific savings product that fits your situation. Some savings products lock your money up for years. Some savings products don’t offer the rate of return you want. You may think that some savings products are just too risky.
Consider the strategy of CD laddering
Certificates of deposit, or CDs, are considered a good place to save your money because they are risk-averse, offer a higher interest rate than other savings account products, and offer variable maturity dates. Some people make the mistake of putting all of their money into one short-term CD account, which earns a lower interest rate compared to longer-term CDs. After one CD matures, it renews for another short-term account.
CD laddering is a diversification strategy. It allows you to set up multiple CD accounts with your credit union, as opposed to putting all of your money into one short-term CD account that you find yourself continually renewing.
You get a better interest rate for the long-term CDs with a longer maturity date. However, you may not want to tie up all your money for the long term. A CD ladder will allow you to plan for the future and give you access to your money when you need it. Opening a short-term CD with some of your money allows you access to the funds you need in the short term. You will get an even better rate by allocating some of your funds to a longer-term CD.
Plan for your future: CD laddering takes some planning. You need to anticipate when you will need to access your funds for expenses. Goal setting will help you plan for the future. Make sure you set short-term and long-term goals.