CD Ladders

Today we're talking about CD Ladders.

This article from Lifehacker does a good job explaining, but basically a CD ladder is a a sort set set of rolling short-term CDs that you are constantly reinvesting. Once it is all set up, every month 1/12 of your money will mature. As some point you will end up with twelve 12-month CDs. With a CD, your money is stuck, and you can't get a hold of it unless you want to pay a penalty. Having separate CDs will cause you to earn slightly less, but your money is more accessible. This is not for something like your retirement savings, but rather your emergency fund savings. Cash you might need, but don't need right now. It is a good thing to do with cash stocked away, and possibly a good way to get just a little bit than you would with a savings account.

So, we have to qualify "a little bit more." As an example, we went to Nerdwallet.com and the highest rate for a savings account from a reputable bank was 1% APY from Ally. Then we looked at 12-moth CD with a minimum of $1000 deposit and found a rate of return of 1.25%. Basically, if you were investing $24,000 the extra 0.25% yield would give you a plum sum of $60 more. Granted, this is back-of-the-envelope math, but we're estimating to see if it is worth the extra effort. By our view, it is a lot of moving around things for a little return, although it is not nothing. It just depends on how you like to spend your Saturday nights.

You have to remember that interest rates have been very low for quite some time, which means that savings accounts and CDs are less profitable options at least compared to the market. The article we referenced was from 2010, and you could look at historical rates and perhaps it becomes more worth the effort. This is something you might consider as interest rates go up.