Today’s high interest rates have many people interested in investing in certificates of deposit (CDs).
If you’re a beginning CD investor, here’s why CD laddering can be a great strategy that can take the guesswork out of investing and ensure you’re guaranteed today’s high rates for a long time to come.
A CD ladder can be an ideal choice for beginning CD investors
A CD ladder is a good option if you want to get started investing in CDs. To understand why, let’s take a look at how it works.
With a CD ladder, you don’t just open one CD. You open a bunch with different term lengths. Each CD is a rung on your ladder. For example, you might open:
You’d typically invest the same amount in each CD, with the amount determined by how much money you have. So, if you wanted to put $5,000 total into CDs, you’d put $1,000 into each one. Then, as each CD matures, you’d then either reclaim your funds for other goals or reinvest them in a new 5-year CD.
You just need to make sure you have enough to meet the minimum balance requirements of each CD. Fortunately, many of the options on our lists have no minimum deposit requirement, so you don’t necessarily need a lot of money to get started.
Why would you want to create a CD ladder as a beginner?
There are big benefits to using this investing strategy — especially for beginners.
- You can take advantage of today’s high rates on short-term CDs and guarantee you’ll keep earning competitive rates for a long time. Rates on all CD term lengths have been higher recently than they’ve been in years. But short-term CDs are offering especially high yields. You can take advantage of those while also locking in today’s unprecedented rates for half a decade.
- You won’t have to tie up a lot of money for a long time. CDs will start maturing after a year and mature every year thereafter. So if you decide CD investing isn’t for you, you’ll be getting your money back pretty soon and on a regular schedule.
- You can take the guesswork out of investing. You don’t have to try to guess whether interest rates are going to go up (in which case you’d be better off with a short-term CD) or down (in which case you’d be better off with a long-term one). You get the best of all worlds and hedge your bets.
There’s no reason not to give this proven strategy a try. But before you do, check these moves off your to-do list:
- Decide how much money to devote to your CD ladder. This should be money you can afford to tie up for a while, But it should not be money you’re investing for the long term (five or more years). That money belongs in a brokerage account offering higher potential returns.
- Pick a CD from each of the lists above and open an account online. Then deposit an equal amount of money into each one.
Finally, just sit back and watch your money earn competitive yields with no risk. It’s a simple, straightforward approach any beginner should love.
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