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Climbing the CD Ladder


To maximize yield in the current low-interest environment, financial experts recommend the CD ladder. These take advantage of higher long-term CD yields without tying up cash for long periods of time.

For investors, trying to squeeze a few extra pennies of yield in the current low-interest environment can be frustrating. One suggestion from financial advisors is a CD ladder that lets you take advantage of higher long-term CD yields without tying up all your cash for long periods of time.

The concept is simple. Take your cash stash and divide it into five equal parts, then invest it in five CDs of varying maturities. For example, you might put one-fifth of your money into a five-year CD, another fifth into a four-year CD, and so on down the ladder, putting the final portion into a one-year CD. Currently, the average five-year CD is paying just under 3%, but you may be able to find a better deal at The yield on a one-year CD is averaging about 1.7%. When the one-year CD matures, you reinvest the money into a five-year CD, hopefully at an even better interest rate. Eventually, you will have five CDs earning top interest but never be more than a year away from being able to cash one in.

CD ladders can come in any size and you can adjust the maturities to suit your comfort level and your cash-flow needs. If you want to be able to reach your money faster, choose shorter maturities, such as three-month or six-month CDs, for your ladder. The shorter maturities offer you more liquidity and may also help you avoid early withdrawal penalties, which could burn up that extra yield that you worked hard to get.

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Victor J. Dzau, MD, gives expert advice
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