CD Laddering For Dummies

26Jun08

Certificates of Deposit (CD) are for two types of people:

  1. Those who are too chicken to invest in the market
  2. Those setting up an emergency fund

I hope you are reading this article for the latter, but I digress. Throwing your money into 1 big CD isn’t a good strategy. Try laddering instead.

Examples

For those who don’t know how to read the above article, here is a real-world example:

  • You have $9,000 to tuck away.
  • Instead of putting it all in 1 CD you break it up into $3,000 CD’s a piece
  • You put each $3,000 into a 6 month, 9 month and 12 month CD
  • When your 6 month matures, you re-invest it into a 12 month CD
  • When your 9 month matures, you re-invest it into a 12 month CD
  • When your 12 month matures, you re-invest it into a 12 month CD

Basically, every 3 months your CD is maturing and your money is accessible. You are also taking advantage of changing interest rates. Instead of locking in 5% for an entire year, maybe the interest rate rose. With a CD ladder you are able to get yourself that rising interest rate.

I’m Lazy, Can Someone Do It For Me?

Yeah. His name is ING Direct. Instead of manually buying CD’s every time they mature, ING has a special CD laddering page that will re-invest for you. Leave the personal finances aside (working for you) while you’re off to more important things like NBA basketball, steak or fine women.

You’ve got your emergency fund covered. Wham, bam, thank you ma’am.

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2 Responses to “CD Laddering For Dummies”

  1. I think she’s smuggling some pretty big C-Ds herself. Maybe even DDs.


  1. 1 How I Setup My Financial Accounts « The Fratboy Investor

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