Building a CD Ladder: It's Easy and Effective

The CD ladder is a type of investment that can provide you with solid interest rates and superior liquidity when compared to a traditional CD. Here are the basics of the CD ladder and how you can implement one for yourself.

CD Ladder

A CD ladder is essentially a group of CDs that you purchase in a staggered manner. The certificate of deposit is a type of investment that allows you to deposit a certain amount of money with a financial institution and receive a guaranteed amount of interest. With a traditional CD, you cannot take money out of it before it matures unless you want to pay a penalty.

With a CD ladder, you are going to purchase CDs with varying dates until maturity. For example, you will purchase a CD that matures in 3 months, one that matures in 6 months, one that mature is in 9 months, and then one that matures in a year. By doing this, you are always going to have a CD that is maturing. You could even set them up to mature even more frequently than that. You could purchase 12 different CDs so that one is maturing every single month.

Increased Liquidity

One of the primary advantages of this approach is that you are going to be able to increase the liquidity of your investments. When you put all your money into one CD, you are going to have to wait until it matures to get your money. If something comes up in the meantime, you will either have to find another source of money or cash out your CD early. If you have to cash out your CD early, it is going to negate the point of having a CD in the first place. It will eliminate all of the interest that you have accumulated up until this point in many cases.

With a CD ladder, you are not going to have to worry about cashing in your CDs. Instead, you are going to have one that is maturing within the near future. This means that you will not have to worry about paying any penalties and you will always have some cash becoming available when you need it.

Emergency Savings

This type of investment is a good way to invest your emergency savings. If you had to put your emergency savings into a single CD, this could cause problems. If you lost your job, you would have to cash out the CD and take the penalty. However, you can structure a CD ladder so that you will not have to worry about this problem. 

For example, you could take the amount of money that you would need to cover one month's expenses and put it into a 90 day CD. The next month, you could do the same thing, and the next month you could do it again. This way, you have money that is becoming available every month. 

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