Ladder Your CDs For Fun And Profit

Here’s a way to get around the worst part of CDs (certificates of deposit) which give you a higher guaranteed interest rate but lock your money in for a certain period of time: Make a ladder!

To wit, instead of buying one CD with your spare cash, buy several CDs with successive maturity dates. So if you have $5,000, you could put $1,000 into a 1-month, 3-month, a 6-month, a 9-month, and a 12-month. This way you take advantage of the higher interest given to the longer-term CDs, but with the money coming up at known times you offset the liquidity problem. Then as each one comes up, you can either use it or reinvest it in a longer-term CD, putting one ladder rung in front of the other.

With the CD-laddering method, you can earn a little more interest while still having access to your cash. Not something that’s so easy to do these days.

Have you tried a CD-ladder? How did it work out for you? Let us know in the comments.

MORE: How to ladder a CD portfolio [Bankrate] (Photo: Mzelle Biscotte)


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  1. Oranges w/ Cheese says:

    I did this :D
    But, you have to figure out how long you’re willing to live without your money vs. getting the best rates.

    In my case, I split $4500 into three accounts. I wanted to do a 6month, year, and 18 month CD.

    Unfortunately, the interest rates for the smaller incremented CD’s were atrocious – about 1 whole percent below the year or 2 year increments. I ended up getting a 1 year – 2 year – and 18 month CD. So at least a year without being able to touch my money, but once the first CD matures, I’ll have money every 6 months thereafter!

    So you gotta figure out where you’re willing to settle.

    • mac-phisto says:

      @Oranges w/ Cheese: short-term CDs generally are piddly, but if you’re willing to shop, you can as much as double your rate. often banks have high-yield short-term offerings for “new money” to boost their balance sheets. you tend to see better specials towards the end of the year.

      as an example, some local banks are offering in the neighborhood of 4-5% for 4-9 months. compare that to 1-2% that i’m seeing at most institutions for <1 year.

    • Eyebrows McGee (now with double the baby!) says:

      @Oranges w/ Cheese: I just went and did this this afternoon. I got 3.1% on a 24-month, which is apparently good? Local credit union.

      (I did $1k each in 6, 12, 18, and 24 months.)

  2. K-Bo says:

    Right now even 2 year CD’s make such a tiny tiny amount more than my savings account. Not really worth it. Great advice for times that the discrepancy is bigger though.

    • MostlyHarmless says:

      @K-Bo: I was seriously considering laddering some CDs from my Car Car Payment and Relocation fund which would mature every 6 months starting in 2 years, but the CD rates are even lower than my Savings rates at the moment. Makes no sense to do that at this moment. Though once the CDs are worth more, laddering is a very good option.

    • kingofmars says:

      @K-Bo: I agree. I check ing direct a few days ago, and the cd were actually lower or about equal to my money market account. Of course the money market account interest varies, and lately it’s just been going lower. Buying a cd would lock in a rate at least.

    • johnva says:

      @K-Bo: There is one other important difference between a CD and a savings account: the CD locks in your interest rate for its duration, which means that it can be a good thing if interest rates fall a lot during that time period. So whether longer-term CDs are a good idea vs. a savings account also depends on how you think interest rates will change over that time period.

      Right now, interest rates are very low, so it seems unlikely that they will be able to go much lower, and hence there seems to be less reason to get a CD to me. The time to lock one in would have been BEFORE the Fed cut interest rates down so far.

    • Brontide says:

      @K-Bo: ING’s rates are going down the tubes, but my CU has 13 month CD’s at %2.22 that’s not shabby these days ( nothing compared to the 4% CD’s I have right now, but better than the wimpy 1.65 or .8 that ING and my CU offers on savings.

      • howie_in_az says:

        @snowmoon: … my CU has 13 month CD’s at %2.22 that’s not shabby these days…

        HSBC’s APY on their savings account is currently 2.45% and you have immediate (well, ok, 2-3 days for their obnoxiously slow ACH) access to your funds.

        I’ve been looking for 4%+ CDs that don’t require 50 years, since that’s really the only thing that’d make me switch from savings, but BankRate is only showing 3.66% returns — for 5 year CDs! Meh on that.

  3. HungryTuna says:

    How about purchasing 12-12month CDs in successive months. This way you have a CD that matures every month and you can take advantage of the better rates.

    • battra92 says:

      @HungryTuna: You know, I’ve been debating on doing that very thing. Once my emergency fund is ready I am ready to do that.

    • MostlyHarmless says:

      @HungryTuna: As long as you have that much cash to turn in, it is great. Typically though, you dont need that much liquidity if you already have an emergency fund.

      My first instinct was to do exactly what you mentioned, but on giving it more thought, i realized 6+9+12 is a good plan too. 3 months isnt all that much and your first cash becomes available in 6 months instead of a year. And then when you roll the lower 2 into 12 month periods, youre earning better interest too.

      Basically you are insuring against a sudden need in 6 months by trading off a slightly lower interest rate.

  4. hewhoroams says:

    At ING the CD rates seem to max out at 12 months, which I always though was unusual.
    Is there any particular advantage to taking a 24 mo over a 12 mo?
    I seem to be able to just roll my expired 12 mo into a new 12 mo CD with the same interest rate.

    • johnva says:

      @hewhoroams: As I said above, it locks in that interest rate for a longer period. So it can be useful if you think that interest rates will be even lower 12-24 months, because it guarantees you at least that rate.

  5. Blueskylaw says:

    Why buy CD’s when you can invest in Bank of America stock. With your $5000 you can buy about 1600 shares as of this moment. When the stock goes back up to $53 like it was a year ago you sell and profit almost $80,000.

    See, investing can be easy.

  6. edrebber says:

    Every month open up a new 1 yr cd. After one year, you will have a cd maturing every month. You can add funds to the existing CDs after the first year. After the first year, you will have access to 1/12 of you money every month without a penalty.

  7. Bladefist says:

    Wait until they figure out whats going on with the FDIC before you start setting these accounts up. They said they may be insoluble in 6 months. FDIC is important for CDs

    • johnva says:

      @Bladefist: Wow, finally something I can agree with you on!

      The FDIC is currently in deep trouble unless they get a big infusion of cash. They’re apparently raising rates they charge banks, but that might not be enough. I assume though that the government would just have the Fed perform a direct injection (create money out of thin air) rather than let the FDIC become insolvent. If the FDIC became insolvent, all confidence in banks would be shattered and it would basically be game over for America for a long time. So I highly doubt they will let that happen. They might take some other unpleasant steps to prevent it, but they WILL protect the FDIC at all costs.

      • Harlan says:

        @johnva: Yes, exactly. If you believe that the FDIC will fail to insure depositors, you’re best off using your money to buy farmland in Iowa, because you’ll be forced to grow your own food before this will happen.

      • Bladefist says:

        @johnva: 1 Issue down, 9,000,000 more to go. Baby steps :)

    • Nick Dina says:

      @Bladefist: if the FDIC goes belly up that means the government went belly up. They can borrow money under the government. also, if you go with a solid bank than you don’t have to worry about the FDIC having to step in. higher interest rates right now are a good indicator you’re going with a struggling/failing bank.

    • grumpygirl says:

      @Bladefist: Very true, but credit unions are insured separately by the NCUA. I’m pretty sure they’re not facing the same sort of crisis as the FDIC.

  8. HarcourtArmstrong says:

    Good advice! Many financial advisers charge big money to do exactly the same thing. (they also put a portion in blue chip stock)

  9. Anonymous says:

    I think its also important to point out that this method really only works best with a downward sloping yeild curve (where predicted yields are projected to be lower over time) as your money will be locked in at higher rates for a longer period of time. However, if the yield curve is upward sloping it is more beneficial to invest that money in short term cds as the rising rates will out weight the benefit of the higher yield on the longer term investment CD as you will continually be investing in higher interest rates….

  10. Claytons says:

    Good luck finding a CD that will pay you anything, I just had a 12 month, 4% CD mature and asked BoA what kind of deal I could get if I rolled it into another CD. The lady looked at me, frowned and said “The best I can do is an 18 month at 2%”. I told her that was barely above my ING savings account and left. Anwyay, I’ll not a big deal. No point in CD’s at a time like this, anyway. If you’ve got some money on the side, time to start figuring out where to put that to double it in the next two years.

    • Brontide says:

      @Claytons: at 1.65% and dropping like a stone ING is not looking very pretty these days. I would look to local CU’s as mine offers 2.22% for 12 months and 2.52% for 18 month.

  11. Harlan says:

    The policy on the CD I get from my credit union says the following: “The penalty for early certificate withdrawals is the loss of 90 days dividends on the original or renewal certificate amount.” If I don’t expect to need the money, it’s best to get the longest certificate I can with the highest interest rate. Worst case, I withdraw early, and my effective interest rate goes down 1%. Much easier than laddering.

    Do other institutions have a more draconian early-withdrawal policy?

  12. Anonymous says:

    Laddering is great. We laddered so that we had liquid cash every three months. The only drawback was that I had to be willing to buy a new CD every three months, which takes a little effort. It was comforting to know that if we blew through our rainy day fund, we’d have liquid cash soon.

  13. kwsventures says:

    I wouldn’t put all my money in bank CDs. With the out of control government spending and crazy debt, we will have hyperinflation in the next few years that will force interest rates up and devalue the dollar. Thus, your “safe” bank CDs will not maintain their value.

    • johnva says:

      @kwsventures: Well, laddering mitigates that risk somewhat. If interest rates rise at the same rate as inflation, bank deposits will maintain their value, and you would be able to roll your money into higher rate CDs over time. But yeah, you might not want to take out super-long-term CDs or anything.

      Or, if you’re really worried about hyperinflation, put your money in something else (gold, or perhaps TIPS or I-bonds).

    • Brontide says:

      @kwsventures: The fed can print all they want they don’t have the ability to replace the fake value that is evaporating right now. As long as things continue downward they will not be able to combat deflation.

      The best time to invest in gold is when people are not talking about it, trading it now and you are just dealing in momentum and will likely get burned on the way down.

      That said it’s probably not wise to lock yourself into a long term ( 24+ months ) right now as inflation could become a problem in the next year or so if the fed continues it’s unwise cash injections and “qualitative easing” policy.

  14. Jeroen Van Rijn says:

    I was looking into doing this, but figured it could be better to do something like this:
    Open both a 3 month and a 6 month CD.
    When the 3 month CD matures cash out and open another 6 month CD with the money just received back.

    Now you have two 6 month CD’s with one of them maturing and renewing every three months. So you have the benefit of a slightly higher interest rate and regular availability of your money. I figured that in case of a lay-off I do not need all the money at once anyway.

    You can add shorter and longer terms as desired (and available)

  15. theboomboomcars says:

    My Credit Union started a new CD this year. It is a 1 year CD that you can add money to any time and withdraw money the first 5 days of each quarter penalty free as long as the remaining balance is above $100.00. It also has a jump up feature so if interest rates go up I can increase the interest rate once.

  16. ADismalScience says:

    If you buy a CD at these rates in this market you are out. Of. Your. Mind.

    At least give it a year when we’re experiencing hyperinflation and high interest rates.

  17. Kevin Davis says:

    I’ve been doing this same sort of thing for a while now; I have twelve 12-month CD’s (of equal amount). This way I know I have backup cash each month and I am always getting the 12-month rate. When one matures I throw the cash back into the principle – increasing my investments.

  18. finite_elephant says:

    I’ve done this, but you really have to watch the rates, and shorten your rungs when the rates are bad (as they are now). You’ll hate yourself if you buy a long term CD with a bad rate when, if you’d waited a month for the rates to go up, you could have gotten the same rate on a shorter CD.

  19. Kevin Davis says:

    Insightful, I never thought about that.

  20. majortom1029 says:

    As of right now my money market savings account is the same interest rate as a 6 month cd so no real need to change it over. (this is at my local credit union).

  21. Fineous K. Douchenstein says:

    Ben, you really should have included the second part to the laddering. As each of the initial CD’s run their course, you should reinvest them all into 12-month CD’s (I’d have skipped the 1-month, just go 3/6/9/12) and then you get the 12-month interest percentage, but your money is available every 3 months.

    You also shouldn’t dump all your money into it. If you have $5000 to invest, you probably should keep at least some of that liquid in a market account, should the need arise.

  22. WBrink says:

    Laddering CDs is currently just awful, awful, awful, awful, awful. I don’t know why anybody would suggest this in the current times.

    Put the money in a high-yield online savings account. You’ll have full liquidity anyway. Then wait for better rates.

    • orlo says:

      @WBrink: Ladder is clever, but CDs haven’t been compelling for a while, and likely never will again because the Fed’s new philosophy of low interest rates.

  23. bwcbwc says:

    Laddering works pretty good with Term Life Insurance too. The basic effect is to reduce the “sticker shock” when policies come up for renewal. It also lets you take advantage of changes to the actuarial tables (which generally reduce rates for life insurance) in a more timely manner.

    So you’d start with a 10-year level term and a 20-year level term (say), then when the 10-year policy is about to expire, you replace it with a new 20-year policy. Repeat until the end of the last policy is at a point where life insurance no longer makes sense.

  24. forgottenpassword says:

    Someone explain to me why anyone would put their money in a cd when there are credit union “rewards checking” accounts available all across the country that are offering more interest than most cds? I can find local ones offering 5-6% interest right now.

    here… []

    Good luck finding a cd that can compare to that.

  25. The_IT_Crone says:

    I’m considering it, but the trouble involved, wow. That basically means at least 1 trip to a bank every month. I’m not sure if I’m willing to do that.

  26. ceejeemcbeegee is not here says:

    What is the point of putting $1000 away for 6 months only to get 2% profit? Surely you can find a way to make an extra $120 without locking up a grand in that time?

  27. bagumpity says:

    I’m not sure I trust banks right now. If I had enough cash that it would matter, I’d get a safe deposit box box and put it all in there. At least when the bank implodes I won’t have to wait for the FDIC to cut a check.

    Just sayin’