The need for CD ladders

The primary advantage of certificates of deposits over other types of savings account is the high interest rate it offers. In exchange of this interesting rate consumers must agree to keep their money in the banks for a particular term. The term may range from three months to five years and the rate increases as the time gets longer.

This element of time is what making some people think twice about buying a CD. Of course everyone wants to have their money grow in the fastest way possible nonetheless there is no guarantee that they will not need their savings for years. The liquidity of a savings is necessary for consumers to address emergencies that might stumble their way anytime.

This is why you need CD laddering, to make ends meet. CD laddering is a tactic used in investments to take advantage of certificate of deposits. When you ladder a CD, you will need to buy several CDs with different terms. For instance you have $4,000 to invest. Instead of putting this entire amount into a single CD you can just divide it to fit several CDs. You make take four different terms like 12 months, 24, 36 and 48. Then you give $1,000 for each account. This way you will have a CD that will mature every year. If you wish to continue laddering your investment after one matures you may do so.

In laddering CDs you have to consider if you can stick to this kind of strategy otherwise you can just settle with a savings account. If you made withdrawals within terms you will be penalized and this can hurt your chances of taking advantage of certificate of deposits. The extra money your fund may earn will disappear if you will break your laddering. Worst you might end up with lesser amount of money than what you originally deposited just because of your frequent early withdrawals.

If you are not sure that you can keep your hands off your money then certificate of deposit may not really be your thing. Consider accounts that offer more liquidity instead. There are alternatives for certificate of deposit like savings account or online banking. These alternatives however cannot guarantee you with their rates. There is always a possibility for the interest rate to rise and fall thus your money is more at risk.

It is also not advisable to get CD laddering if interest rates are expected to rise.

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