The CD Ladder Strategy Explained
Certificates of Deposit (CDs) often offer higher interest rates than savings accounts, but they lock your money away for a specific term (e.g., 1 to 5 years). A CD Ladder is the perfect compromise between earning high rates and keeping your money accessible.
How to Build It
Instead of putting $10,000 into a single 5-year CD, you split it into five $2,000 CDs with staggered terms:
- $2,000 in a 1-Year CD
- $2,000 in a 2-Year CD
- $2,000 in a 3-Year CD
- $2,000 in a 4-Year CD
- $2,000 in a 5-Year CD
The "Rolling" Effect
After one year, your first CD matures. You now have access to that cash if you need it. If you don't, you reinvest it into a new 5-year CD.
Repeating this process every year means that eventually, all your money is earning the high 5-year rate, yet you still have money maturing (becoming available) every single year.
