High Interest Certificate of Deposit
When purchasing a certificate of deposit you want to get the highest interest rate possible. The higher the interest rate, the more money you earn from it. One way in which you can accomplish this is through CD laddering. This investment strategy ensures that you always have a high interest certificate of deposit, regardless of what the current interest rates are.
Due to the fact that interest rates are constantly changing, investors do not want to be stuck with a long-term, fixed rate CD. With a long-term fixed rate CD they are stuck with the interest rate that was offered at the time that they purchased it, which is not necessarily the highest rate possible. CD laddering is a great way to make sure that you are getting the highest interest rates possible without doing an early withdrawal in order to reinvest in a higher rate CD.
CD laddering works especially well for large investments but you have to make sure that you can afford to do without that money for an extended period. This is laddering works. The investor splits the amount that he/she wants to invest between several separate, CD's that each have different maturity dates. For a three-year ladder plan you might choose to split $15,000 between a two year CD, a three-year CD and a four year CD. Each plan would then start out with a $5,000 investment. Once the two-year CD matures, they take the money plus any interest earned from that CD and invest it into a new four-year CD. At this time, the three-year CD is now a two-year CD and the original four-year CD is now a three-year CD. Each year, one CD will mature and a new one will be created with the funds from it. This allows the investor to continue reaping the benefits of high certificate of deposit interest rates because they do not have their entire investment tied up into one long term fixed rate CD. Note, that you can set your ladder strategy up any way you want. You can have between two and five CD's working for you at the same time. You can also choose the terms that best suit your needs.
If you do decide to use the ladder technique, make sure that you check with several different financial institutions before you invest or reinvest your money into a CD. Each one has different interest rates and requirements. By checking around you know that you are getting the best rates possible.
While there are other ways to ensure that you consistently have a high interest rate certificate of deposit, the ladder technique seems to work very well. It gives the investor the freedom to change their interest rates if they want to without having to pay penalties for early withdrawal.
