What is a CD Ladder

A CD ladder is a strategy in which an investor divides a sum of money into equal amounts and invests them in certificates of deposit (CDs) with different maturity dates. This strategy decreases both interest rate and reinvestment risks.

It is an investment strategy where you invest in a series of individual CDs with staggered maturity dates. Instead of locking all your money up by opening one CD with a maturity date in the very distant future, you simply use smaller dollar amounts to open multiple CDs with various maturity dates.

With that strategy, you’ll have funds become available if you need it more often than a traditional long-term CD. But you could still earn more interest than an average short-term CD over the duration of your ladder.

Pros

• Your money is more accessible

• You can boost your overall return over the length of your ladder because of the higher higher annual percentage yield on the longer CDs

Cons

• Missing out on earning a higher return in a more aggressive type of investment

• CDs are not known for offering the highest interest rates

How to build a CD ladder

Here’s how you can set up a CD ladder.

Let’s say you want to build a three-year CD ladder. If you have Php 30,000.00 to invest, then you might choose to divide the funds equally into three CDs with different maturity dates:

  • Php 10,000.00 into a one-year CD with 1.15% interest per annum
  • Php 10,000.00 into a two-year CD with 1.25% interest per annum
  • Php 10,000.00 into a three-year CD with 1.50% interest per annum

Mini CD Ladders

A mini CD ladder is the same concept as a regular CD ladder but with shorter-term CDs. You could build a CD ladder out of three-month, six-month, nine-month, and one-year CDs to deploy the same strategy. Keep in mind, though, that by building a ladder with shorter-term CDs, the interest rates you’ll be able to get will be lower

Pros

• Higher liquidity

Cons

• Lower interest rates

How to build a Mini CD ladder

Here’s how you can set up a Mini CD ladder.

Let’s say you want to build a nine-month mini CD ladder. If you have Php 30,000.00 to invest, then you might choose to divide the funds equally into three CDs with different maturity dates:

  • Php 10,000.00 into a three-month CD with 0.25% interest per annum
  • Php 10,000.00 into a six-month CD with 0.5% interest per annum
  • Php 10,000.00 into a nine-month CD with 0.75% interest per annum
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