How to build a CD ladder to capture higher interest rates
After years of relatively low yields, certificates of deposit, or CDs, have recently shelled out higher rates, following a series of interest rate hikes from the Federal Reserve.
While there's uncertainty around the Fed's future moves and the direction of interest rates, experts say CD ladders may capture higher yields while offering flexibility.
"It's always a tried and true strategy," said Ken Tumin, founder and editor of DepositAccounts.com, a website that tracks the most competitive options for savings. "You don't have to worry about trying to guess where interest rates are headed."
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Typically, a CD ladder involves splitting equal amounts of cash among multiple CDs with different maturity dates. As the shorter terms expire, you can invest the proceeds into longer-maturity CDs.
"A CD ladder gives someone an opportunity to harvest a variety of yields over varying timelines," said Bankrate senior economic analyst Mark Hamrick. "And if you're searching for the highest yields, that can be quite rewarding."
For example, investors may purchase five CDs, with maturities ranging from one to five years, freeing up 20% of their original investment every year.
Source: CNBC
