Why a CD Ladder Might Be a Smart Move for You
When saving money, many people look for options that offer security, steady growth, and flexibility. But it’s not just about how much you save—it’s about how smartly you save. While your checking and savings accounts are great for day-to-day needs, one smart savings strategy checks all these boxes and is called a CD ladder. But what exactly is a CD ladder, and how can it benefit you?
Let’s break it down.
What is a CD Ladder?
A Certificate of Deposit (CD) Ladder is a savings strategy where you divide your money across multiple CDs with different maturity dates. Instead of locking all your funds into a single long-term CD, you stagger the terms (e.g., 1-year, 2-year, 3-year, etc.). As each CD matures, you can choose to either reinvest it into a new CD at the longest term in your ladder or access the cash while keeping the rest of your money growing at higher interest rates. Over time, this creates a continuous cycle of maturing CDs, giving you regular access to your money and the potential for higher interest rates.
An Example of a 60-Month (5-Year) CD Ladder
Suppose you have $5,000 to invest. Instead of putting it all into a single 60-month CD, you could divide it into five $1,000 CDs with terms of 12 through 60 months:
- $1,000 in a 12-month CD
- $1,000 in an 18-month CD
- $1,000 in a 24-month CD
- $1,000 in a 36-month CD
- $1,000 in a 60-month CD
After the first year, your 12-month CD matures. You can then reinvest that $1,000 into a new 60-month CD. As time passes, another CD matures, giving you access to funds or the opportunity to reinvest, thus continuing the ladder. Soon, you will have CDs maturing at regular intervals, earning you higher interest than a basic savings account – while still having access to cash at each interval.
The Benefits of CD Ladders
- Higher Interest Earnings: CDs typically offer better interest rates than checking and savings accounts. By laddering, you get the benefit of locking in those higher rates while still having regular access to some of your funds.
- Protection from Interest Rate Fluctuations: You spread your interest rate risk by staggering your CDs. If rates go up, you can reinvest maturing CDs at higher rates. If rates fall, you’ll still benefit from the longer-term CDs that locked in better rates earlier.
- Flexible Planning for Your Goals: CD ladders can be tailored to your timeline. Whether you’re saving for college, a home, or retirement, you can build a ladder that aligns with when you’ll need access to your funds.
- Low-Risk Investment Strategy: CDs are one of the safest investments because they’re FDIC-insured (up to $250,000 per depositor, per insured bank, for each account ownership category). A CD ladder lets you grow your money without market risk.
- Reduced Liquidity Risk: With a traditional long-term CD, withdrawing early often means paying a penalty. A CD ladder ensures that a portion of your money becomes available regularly, so you are not locked out of all your savings at once.
Is a CD Ladder Right for You?
A CD ladder is ideal if you:
- Want a safe, predictable return on savings.
- Don’t need immediate access to all your funds.
- Prefer low-risk investments over stocks or bonds.
- Want to beat traditional savings account rates.
A CD ladder is an innovative, structured way to maximize your savings while maintaining flexibility. Whether saving for a future expense, building an emergency fund, or just looking for a better return on idle cash, a CD ladder could be the perfect strategy for you.
Ready to start? Come in to any of five banking locations or visit our website at www.ndbt.com to schedule an appointment with one of our NDBT bankers. They can help you explore CD options tailored to your needs and build your ladder towards savings success!
