How a CD Ladder Can Protect Retirement Income

How to build a CD ladder

In order to build a CD ladder you invest in a number of CDs which are set to mature at regular intervals, which can be six months to one year.

For example, let us assume that you have $10,000 to invest. Split that money into five equal parts — $2,000 each — and invest equally across five CDs: A one-year CD, a two-year CD, a three-year CD, a four-year CD, and a five-year CD.

At the end of the first year the one-year CD will mature, at which point you can reinvest the money into a five-year CD.

At the end of the second year, the two-year CD will mature, at which point you can reinvest the money into another five-year CD.

Keep repeating this strategy until you have five five-year CDs in your ladder, each of which is set to mature in a separate upcoming year. You will have earned more money from your CDs compared to what you could have earned if you had parked all your money in a savings account or a money market account.

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