CD laddering can help maximize your investment
If you're looking for a guaranteed rate of return along with investment income, CD laddering may be a great savings strategy for you. Building a CD ladder involves splitting your investment among several certificates of deposit with varying maturity dates. Laddering certificates of deposit allows you to take advantage of the higher interest rates typically associated with longer-term CDs, without losing the liquidity and flexibility of a shorter-term CD. CDs ensure a guaranteed rate of return, and are FDIC-insured up to $250,000 per depositor.
How CD laddering works
Let's say you have $25,000 to invest in certificates of deposit and want access to a portion of the funds at least once a year. Here's one example of how a CD ladder could work:
- Start with an initial CD ladder that includes four $5,000 CDs with varying terms: 6-month, 12-month, 18-month and 24-month.
- Think of each CD as a rung on a ladder. As one matures, the next one moves up a rung. In this example, when the 6-month CD matures, you would reinvest the funds (minus whatever money you may withdraw) in a new 24-month CD. Likewise, when the 12-month CD matures the following year, you would reinvest those funds in another 24-month CD, and so on.
- In this example, at the end of year two, you would own four 24-month CDs in your ladder, with one maturing every six months. Over time, as the terms become longer, interest rates increase and the ladder is maximized.
- You will benefit from the higher interest rates typical of a longer-term CD, along with penalty-free access to a portion of the funds once every year.
Principal Bank has two Easy Ladder CD choices:
- Five-Year Easy Ladder CD. Five CDs, five terms: 1-year, 2-year, 3-year, 4-year and 5-year.
- Two-Year Easy Ladder CD. Four CDs, four terms: 6-month, 12-month, 18-month and 24 month.
Check out this CD ladder calculator to find out the benefits of investing in a series of CDs with different maturities.
If you have questions about CD laddering would like to open a CD Ladder, our personal bankers are here to assist you Monday through Friday from 7 AM to 9 PM (Central Time), excluding holidays. Call us at 1.800.672.3343.