Q: Today's inquiry comes from Elizabeth. She asks: “What is a CD ladder?”
A: A CD ladder is a method for investing. You allocate a specific amount of money across several certificates of deposit (CDs) with different maturity dates.
For instance, if you have $10,000 to invest, rather than placing it all in a single 5-year CD, you could split it into five CDs that mature at 1, 2, 3, 4, and 5 years. When each CD matures, you can either reinvest in a new 5-year CD or use the funds elsewhere.
Many investors appreciate CD ladders for various reasons. One key advantage is that funds become accessible as each CD matures, providing flexibility. Additionally, this strategy allows you to benefit from increasing interest rates over time or retain your investments if rates decline. For those who are cautious or just starting out, CDs are often a suitable choice due to their low risk and FDIC insurance.
