What is CD Laddering?
A CD ladder by definition is establishing a portfolio of multiple CDs, with varying interest rates and maturity dates. When an investor establishes a CD ladder, they are seeking an income stream that is both consistent and ongoing.

For example, an investor who has $24,000 to invest into CDs may establish 12, $2,000 CDs that they will purchase over the next 12 months. After the 12 month, one CD will become mature each month with its original principal amount plus interest. At that time, the investor could choose to liquidate the entire CD, to take the interest and reinvest the principal into another 12 month CD or to allow the entire CD to roll over into a new CD if they did not need the current income presently.

Investors select when they would like the laddering to take place; whether it’s monthly, quarterly or semi-annually and then they establish both an investment pattern and a withdrawal pattern when leveraging CD laddering. Also, it is important to investors to choose the best CD rates, enabling them to receive the greatest income return on their investment when the CDs mature.

Why CD Laddering?

There are a variety of other investment benefits to CD laddering, including:

• The ability to customize both the CD interest and cash distributions for when they are personally needed. Investors may select when they would like to have the CDs become mature, often selecting monthly or quarterly to generate regular income streams.
• CDs are guaranteed by FDIC insurance in the event of a bank default, giving many investors peace of mind.
• CD laddering works to assist investors to create greater CD rates than individually purchasing them without a long term strategy. By laddering, investors are able to dollar cost average their cash investments over time, taking the opportunity to have a variety of CD rates rather than a single rate with a single purchase.

Deciding Whether CD Laddering is for You
Many CD investors are seeking both preservation of capital and income from the interest on an ongoing basis. As with any investment, it is important to make sure that the risk tolerance and expected rate of return are in alignment with an investor’s personal goals. CD rates will fluctuate regularly, but are considered to be a safe investment and relatively simple to understand and to use within a portfolio. When creating a CD laddering strategy, it is advised to seek the advice of an investment professional.

Related posts:

1. Understanding CD Rates
2. A Look at Fixed Investments
3. Investing for CDs: What Is The Best Type Of Investment?

Post: An Introduction to CD Laddering taken from: Ratelines.com

1. CD Maturity Dates- Be sure to ask the financial institution of when the CD matures. While this would seem like a fairly straightforward thing to ask when investing into CDs, it is commonly overlooked. In fact, it is best to ask the financial institution to provide you with the maturity date in writing so that you can log it into your records when you get home.
2. Callability- When investing into CDs, be sure to ask the financial institution about any possible call features. A call feature gives the CD issuer the opportunity to call the CD prior to its maturity. The advantages to the issuer are that they can refinance debt in a low interest rate economy. The advantage to the investor is that a callable CD rate will be higher than a non-callable CD.
3. Withdrawal Penalties- When investing into a CD, one of the most important things to inquire about is what the withdrawal penalty will be if any. Withdrawal penalties often apply when the investor chooses to liquidate the CD prior to its maturity date. Be sure to ask the financial institution about the penalty associated with your investment in the event that you withdrawal the investment from the CD.
4. Variable Interest Rates- While the interest rates are often stated and static throughout the entire duration of a CD, it is possible that they will change. This is most applicable for a variable rate CD and if you are considering investing into them, be sure to ask how and why the CD rate may change.
5. Stated Interest Rates- In addition to evaluating how the variable interest rate may apply, it is important to understand the basics of all other CD rates and how they will apply to you.
6. Compare Rates- Prior to investing into a CD, be sure to compare the CD rates between investment institutions. You will often find that institutions will be fairly competitive with their CD rates in order to attract investors. Compare CD rates in local banks, financial institutions and online in order to locate the best option for your investment needs.
7. Maturity Dates- Another significant decision that needs to be addressed when selecting CDs for your investment portfolio is the length of their maturities. While the rates are often higher for the longer term CDs, it is important to make sure that you will not need access to those funds during the duration of the investment.

While these are only a few of the tips and considerations an investor should evaluate prior to making an investment, they will provide the basis for understanding CDs, CD rates and how to select the best CDs for your investment portfolio.

Related posts:

1. How To Finance Investment Property
2. Understanding CD Rates
3. An Introduction to CD Laddering

Post: Investing for CDs: What Is The Best Type Of Investment? taken from: Ratelines.com