RateAPY

Laddered CDs Average Higher Returns

Posted by: RateAPY Bank Rates News
November 26th, 2009

Timing the market is a tough thing to do, and it’s not a reliable strategy for most investors. Certificate of deposit (CD) laddering is a classic way to increase your yields and avoid letting your money sit around in a savings account waiting for interest rate upswings. Your CDs will average a higher return while helping maintain your liquidity.

How to Ladder Your Certificates Of Deposit

If you have $50,000 to invest and would like the security of a certificate of deposit for a 5-year time horizon, don’t put the entire balance in one 5-year CD. Instead, put part of the money in a 1-year CD, part of the money in a 2-year CD, and so on until you have the last part in a 5-year CD. If your intention is to continually reinvest in CDs, you can divide the money into equal parts. After a year, when the first CD matures, roll the balance over in a new 5-year CD. After four years, all of the money will be in 5-year CDs, with one CD maturing each year–allowing you to get some of the highest rates available for the account type without locking up your money for the entire 5 years.