The main idea behind a CD ladder is that you are not locked into just one CD. The ladder should be composed of several CDs each maturing once a year or in some regular interval. This provides two benefits. First, it gives you regular access to your CD money without having to worry about early withdrawal penalties. Second, it allows you to take advantage of higher rates of long-term CDs, and it gives you the opportunity to reinvest in higher rates as the CDs mature.
Poll: Are you still using a CD ladder?
With today's interest rates being so low, do CD ladders still make sense? I thought this would make for a good poll. Are you still using a CD ladder? If you are still laddering CDs, have you made changes? For example, some may have decided to renew CDs on their ladders into longer-term CDs to take advantage of higher rates. Others may have decided to renew CDs into shorter-term CDs to prevent being stuck into a low-rate CD if interest rates rise.
My Take on CD Ladders
I've seen some financial advisors who have claimed that the CD ladder strategy is all but dead. It might seem unwise to renew CDs that mature today into new long-term CDs which have such low rates. However, many had those same concerns two years ago. I'm sure many readers who opened long-term CDs two years ago are glad about their choices. The problem is no one knows about how interest rates will change. The CD ladder provides a strategy that doesn't require you to guess about future rates.
CDs don't have to make up one's entire portfolio. For the fixed-income part of your portfolio that you want to keep safe, CDs and CD ladders can still make sense. For example, Allan Roth who writes for CBS News has written that he has "roughly" 70% of his "fixed-income portfolio in high-paying CDs that have easy early withdrawal penalties."
CD Ladder Overview, Strategies and Tips
If you're not familiar with a CD ladder, we have a CD ladder overview with an infographic. There are ways you can tweak a CD ladder. I described some of these ways in my post on Alternatives to CD Ladders. There are issues that can mess up your CD ladder and reduce your CD earnings. I reviewed some of these in my posts Issues to Consider for Your CD Ladder and 10 Gotchas to Avoid for Bank CD Investors.