bank rates

Laddering CD Accounts

Do you have a lump sum of money that you have been sitting on? Have you been waiting for interest rates to climb? If so, you may want to consider the benefits of laddering certificates of deposit. The great thing about laddering is that you can increase your rate of return while keeping a low risk factor. And at the same time you will also have access to some of your money.

Starting this process is not as hard as you may think. First off, you should by several certificates of deposit of varying terms. For example, 6 month, 1 year, two year, and three year certificates of deposit. Every so often one of your certificates of deposit will reach maturity, and at this time you will have the option to roll it into another with a higher rate and a longer term.

Take this situation for example. Say you have $10,000 in a savings account with your local bank. Surely you are disappointed each and every time you receive an interest statement with only a few extra dollars being added to your account. But instead of dealing with this for the rest of your life, you can begin to ladder certificates of deposit.

The first thing that you would do would be to find a bank that offers competitive rates. You would then decide to purchase five certificates of deposit. Each one would cost you $2,000, and would be spread out over the course of five years. So you would purchase a one year certificate of deposit, a two year certificate of deposit, and so on.

Now that you have made your purchase you can begin to look at each certificate of deposit as a rung on the ladder. Once your first certificate of deposit matures, you will roll it into another five years. You will then do this with each one following that. Once the five years is up you will have made money on interest, rolled each one into another certificate of deposit, and also have access to some of your funds.

Certificate of deposit laddering is a great way to protect yourself against risk and fluctuating interest rates.