Laddering CDs is a good method of avoiding investing all of your money into Certificates of Deposits at a single low rate of return. Another advantage you get is that you will not have to wait more than a year to get back your money if you use a laddering CD portfolio. It works by buying different duration CDs and each year counts as a step up the investment ladder and when your one-year investment matures you can reinvest the money into a longer duration CD such as a five-year CD. In this way, you get more liquidity as well as a more secure means of making income.
However, in your search for highest CD rates, it need not necessarily mean choosing a bank of good repute because even a good banker will tell you to try out CD laddering which is a good way of breaking up one large deposit into several smaller ones that can be invested in periods ranging from one, two as well as three and even four and five years.
When you think about CD laddering, you will no doubt wonder about being able to match cash budget with maturities. It is thus important to think of five year ladder to get the best laddering CD rates, though it is up to you to decide whether to invest in as long as five years or go in for shorter periods.
It is also up to you as an investor to maintain your ladder of investments and not think that the financial institution will do this for you. It is important to remember that CD laddering should be used on time deposits with similar terms to get best rates of return. You will also have flexibility in choosing the time duration for your CD investments and you can rest assured that the laddering CD rates will definitely be higher than for your savings account. So, you may well think of using CD laddering the next time you are investing and want better returns as well.