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11/1/2016

The case for CD laddering.

Personal

Maintaining liquidity while taking advantage of higher rates.


When it comes to savings, having access to your money is just as important as earning high interest rates. Unfortunately, striking a balance between the two can often be a challenge.

With CDs, investors can enjoy traditionally higher rates, but they have to sacrifice liquidity, locking their funds away for a set term with the highest rates usually requiring the longest commitment. The alternative, high-yield savings accounts, provides investors with the access they want, but doesn’t offer the same high returns.

For this reason CDs have usually been reserved for long-term goals and planned expenses. However, for investors who enjoy the low-risk and high return of CDs yet want the liquidity provided by CIT Bank High Yield Savings, there may be another option.


 The image shows a sum of $75k divided into a 1-year CD (high rate) a 2-year CD (higher rate) and a 3-year CD (highest rate). As the CDs mature, they are reinvested into an new CD with the longest term in the ladder and the investor can access some cash as needed.

CD laddering is a simple savings strategy that utilizes multiple CDs to provide investors with the best of both worlds: liquidity and higher rates.

Who should ladder CDs?

By spreading your money among several CDs with staggered terms, part of your money is always near maturity while the other part is taking advantage of the higher rates offered by longer-term products. This provides investors with rolling access to their funds should they need it. And because you are continuing to reinvest in your ladder upon maturity, you're also able to take advantage of any rate changes in the marketplace.

Getting started.

The first step in laddering CDs is figuring out how much you have to invest. Once you know this, simply choose several CDs with rolling maturities that give you access when you need it. For example if you wanted access every 12 months, you could utilize 1-, 2-, and 3-year CDs. As each CD matures, take out what you need and reinvest the rest, or reinvest the whole amount into a new CD equal to the longest term on your ladder—in this case, a 3-year CD. By continuing to do this year after year, you should enjoy a higher return than if you just opened a single short-term CD.

For more information on CD laddering, and for a step-by-step guide to setting up your CD ladder, review our CD laddering infographic.

Ready to get started?

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