investing in your future
Stepping Up Your CDs
Consumers who place their money in CDs are likely to build more wealth if they take advantage of “laddering.” What is laddering?
- You divide up your money and place it in several CDs, each with a different length of maturity.
- You put your money into a combination of checking, savings, and CD accounts.
- You put your money in the highest yielding CD you can find and take it out just as soon as it reaches maturity.
“A” is correct. This approach helps maintain liquidity and may increase the amount of interest you earn, because as interest rates fluctuate, they often get higher over time. Say you have $10,000: Build a five-year “ladder” by placing the money into five $2,000 CDs, each with a different length of maturity (at five, four, three, two, and one year). When the first CD matures, roll it back into a five-year CD, and keep doing this until each matures.