Create CD Ladders for Short Term Money Needs

Posted by Madison on June 30, 2008

I just moved some of our portfolio to cash. There’s a chance that we may need to access it during the upcoming year and I wanted a way to maximize the return, but avoid any risk so I have the appropriate amount of money all year.

I asked on Twitter if anyone had done something similar and Banker Girl pointed me to the following directions: A Guaranteed Return Solution for Uncertain Times.

CD Ladders

I divided the money into four buckets and placed each one in a CD with different maturities. Here’s what my ladder looks like:

Amount Term Rate
$3375 3 months 2.40%
$3375 6 months 2.65%
$3375 9 months 2.80%
$3375 12 months 2.95%

In three months when the first CD matures, I can get access to the amount of cash that I need, and put the rest back into a 12 month CD (which will keep the ladder going).

Benefits of a CD Ladder

Lower Risk. Because the money will mature at different times, the risk of low interest rates is minimized. Unfortunately, they are very low now, but hopefully when rates go back up, I’ll be able to lock in new CDs at higher rates.

Higher Rates. Even though I will need some of the money in three months, I’m able to lock in some of the rates for 12 months by dividing the money into buckets. With laddering, you can take advantage of high interest CDs rather than putting all the money into a short term CD.

Avoid Penalties. Make sure that you do not lock up the money longer than when you will need access to it. Penalties are assessed for taking the money out early. Be sure to plan ahead!

For fixed or short term uses. Ladders work well for short term money needs; and best for fixed amounts. Accessing retirement money and emergency savings can use ladders effectively. However, if you are investing for retirement, you will likely want a more aggressive mix of stocks and bonds.

Multi Use. You’ll notice that the rates are lower than ING or other banks. I purposely used my local credit union because I have our business accounts there. By depositing some additional money there, I will qualify for some added benefits that will outweigh the difference in interest rates. It’s always important to evaluate package deals when shopping around.

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Comments to Create CD Ladders for Short Term Money Needs

  1. This is a darn good idea! I’ve been thinking about buying a CD, but didn’t want all my money tied up for an expended period of time. I may give this a try.

    Marc and Angel Hack Life

  2. @ Marc: I should mention it was really easy to set up too!


  3. Why would you not put it in an ing or hsbc savings account when that is earning interest of 3% or more?


  4. @ Rob: You’ll notice in the last point that I skipped ING because I’m building a portfolio at my local bank. They offered some premium services (earning interest on my business checking) for putting my CDs there.

    The interest on the checking will actually cover the difference in the lost CD rates plus some, so I’ll come out ahead overall.


  5. Thanks for the link! I hope that this strategy works for you – a lot of my clients have had a great deal of success going this route – especially the rate shoppers who don’t mind having accounts at multiple banks.

    As you pointed out, this also works well for building relationship with a local branch bank.

    Heidi at BankerGirl

  6. I like the table you put up. I’m a visual learner and it helps me understand CD laddering better.


  7. Madison,

    How much will you earn at the end of the maturation dates? Also, at what frequency is it compounded?

    Hope to hear from you soon!


    Chris @

  8. Thanks for a great explanation of CD ladders.

    There is an even more visual diagram here:


  9. Madison – you must be the world’s most boring person. Greed is good. You just quit and are spending cash when you are missing a once in a lifetime opportunity to cash in big time when the markets bounce back. Zzzzzzz sleep away your retirement. I’ll pass by you in 10 years, when you’re back in the workforce and I’m sipping Mojito’s on the beach. Enjoy!

    John Silverman

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