CD ladder
Splitting cash across staggered CDs so matured funds reach the market at regular intervals.
Splitting cash across staggered CDs so matured funds reach the market at regular intervals.
A ladder divides money across certificates of deposit with successive maturities - six months, a year, eighteen months, two years - so one tranche matures every few months. The matured CD can be reinvested at the new prevailing rate or spent, which converts a single bet on today's rate into a rolling average, and the locked rates on the remaining rungs protect the yield the ladder already captured. Longer rungs usually pay more, so a ladder blends term premium with liquidity.
Building it well means matching rungs to real cash needs: near-term rungs for planned expenses, longer rungs for money you will not touch. The classic mistake is laddering into a flat or inverted curve where two years pays barely more than six months - the extra lock buys almost nothing. Watch early-withdrawal penalties, since any rung you break before maturity can surrender months of interest, and confirm each rung's issuer is FDIC-insured within your ownership categories.
Worked example
Six CDs of $10,000 maturing every three months over eighteen months: every quarter one rung matures, giving you the choice to spend it or roll it into the longest available rate - dollars arriving at today's market while the old rungs keep paying yesterday's.
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