Creating a Certificate Of Deposit Ladder

A certificate of deposit is the best way to get the highest interest rate for the least possible risk. All you have to do is invest a certain amount of money in a certificate for a certain number of years. You will be promised a fixed interest rate which will be higher than a conventional savings account. The only difference would be that you will not have access to your money while it is invested unlike a savings bank account. 

The problem with such an investment is that you are not exposed to the vagaries of the market. This can be a good thing also. But the fact is that if your investment is exposed to the market index while it is on a high, you can get a higher interest rate than what you had bargained for. Staggering the maturity rates will allow you to get more out of your investment. You will not get the least interest rate, but you will have a shot at getting the highest interest rate. 

There are a few simple steps that you need to follow in order to open a CD ladder 

• First step is to open a bank account. Go for an online account which allows you to buy a CD in any denomination. Do remember to check the basic minimum you are required to buy, else it would be a waste if you did not have that much to invest.
• Decide how many rungs you want your ladder to have. An aggressive ladder would have rungs like 12, 24, and 36 and so on in months to maturity. A more conservative ladder would start at the end of the sixth month and progress at a six month interval.
• Start opening each account. Each CD will actually be a separate account.
• Every time a CD matures, reinvest the cash in the CD with the longest term. If you are going for an aggressive strategy, if your 12 month CD matures you will have to withdraw and reinvest it in the 60 month CD. If you need some of the money, you can always keep a portion for your personal needs. The longer term maturity CD will provide the highest returns in terms of interest rates, and hence your ladder will always be at the top of the earning potential.
• Once you set up a system in place to reinvest the money as soon as it matures, you will not have to worry at all. In fact you can get the bank to directly do this without your intervention if you get it automated. This way you will not have to sign out on the CD every time it matures. Instead, the amount from the CD will automatically get reinvested in the highest maturity term CD.

Start reaping the benefits of risk free FDIC insured investments by setting up a certificate of deposit ladder. This is both risk free and hassle free while letting you reap the maximum in market exposed returns.