If you like to lock in higher rates with
longer term CDs but don't want to miss out on the action
if and when interest rates rise, laddering CDs may be a
good option for you. And best of all, with a CD ladder
you have access to a portion of your money at regular intervals.
You start your CD ladder by buying several CDs at one time but
with different maturity dates. For example, assume you have $10,000
to invest and prefer the higher yields that come with 5 year
terms. You would purchase five CDs:
CD # 1 for $2,000 for a one-year term,
CD # 2 for $2,000 for a two-year term,
CD # 3 for $2,000 for a three-year term,
CD # 4 for $2,000 for a four-year term; and
CD # 5 for $2,000 for a five-year term.
When the 1-year CD matures, roll it over into a 5-year CD and
do the same thing as each subsequent CD matures. At the end of
four years, you will have one 5-year CD maturing every year.
You will have access to cash every year, enjoy the higher yields
of a 5-year investment and be in a position to take advantage
of rising interest rates.
