Are CD ladders a good investment? That’s a question many people ask themselves when looking for potential investment opportunities. A CD ladder can help you earn good returns and make your investment feel more liquid. You build a ladder by investing your money in multiple CDs with varying terms and maturity dates. This can help you stay ahead of rising interest rates and maximize your return.
But before you jump into investing in CD ladders, it’s important to understand how they work and the pros and cons of investing in them. In this article, we’ll discuss CD ladders, their benefits, and if they are a good investment option for you.
A CD ladder is a strategy that involves investing in multiple certificates of deposit (CDs) with varying terms and maturity dates. The idea is to stagger the maturities so that you’re able to access your money at different points. This allows you to take advantage of higher interest rates as they become available, while still having access to your money when you need it.
They can be a great investment for someone looking for stability and a specific investment term. With interest rates on the rise, investing in a CD ladder can help you take advantage of higher rates with little effort.
When investing in CD ladders, you’ll need to decide how much money you want to invest and how long you want to invest for. CDs typically come in terms ranging from one month to five years, but the length of the term will affect the interest rate you’ll receive. Generally speaking, the longer the term, the higher the interest rate.
If you are the client of a large brokerage firm, you may be able to find even better rates, through your investing account, although extra fees may apply.
When investing in CD ladders, you’ll typically need to put in an upfront amount of money, which will be locked up until the term ends. However, this can be beneficial as it can help you avoid the temptation of accessing your money too early.
The downside of CD ladders is that they’re not as liquid as other types of investment, such as stocks and bonds, and you’ll be subject to an early withdrawal penalty if you need to access your money before the term ends.
Exploring different passive income ideas is a good place to start if you have an extra $10,000 to invest. investing in CD ladders can provide you with a steady income, with the potential of higher returns over time.
Happy yield hunting!
Overall, a CD ladder can be a great investment option for those looking for stability and a specific investment term. They can help you stay ahead of rising interest rates and maximize your return, while still having access to your money when you need it. However, it’s important to remember that they’re not as liquid as other types of investment, and you’ll be subject to an early withdrawal penalty if you need to access your money before the term ends.
It’s also worth noting that CDs are FDIC insured to specific limits and offer a fixed rate of return if held to maturity, whereas investing in stocks and bonds can result in losses if the market moves against you.
The investing information provided on this page is for educational purposes only. NerdWallet does not offer advisory or brokerage services, and you should consult with a qualified financial planner or tax advisor before making any investment decisions.
