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Finance Tip Friday #74: CD Ladders are Back! How to Easily Earn Interest


Ever since the Federal Reserve started raising interest rates in 2022 to combat runaway inflation, there’s been an investment strategy that’s been making a comeback. It’s been dormant for about 20 years now, but rising interest rates are making it a ripe time to start using it again.

It’s called the CD ladder. For anyone who doesn’t know, CD stands for certificate of deposit. Back in the 1980s and 90s, when interest rates were relatively high, you could hand your money over to a bank and lock it up for anywhere from 3 to 60 months. In exchange, they’d pay you a fixed rate of interest depending on the market rates at the time – sometimes as high as 5 to 7 percent. It was easy money!

By design, CDs aren’t great for liquidity. If you wanted early access to the money you put into a CD, then you had to pay a penalty. This usually meant some forfeiture of the interest you were earning.

That’s where a CD ladder strategy offered a solution. The way a CD ladder works is like this:

  • Let’s say you had $10,000 that you’d like to put into a CD. 
  • Rather than lock up the entire $10,000 all at once, you’d instead set up four CDs, each with $2,500. You’d also stagger the term of each CD as follows: 3, 6, 9, and 12 months.
  • After 3 months, when the first CD matures, you’d renew it for 12 months. It will now mature 3 months after the first 12-month CD.
  • After 6 months, when the second CD matures, you’d renew it for 12 months. It will now mature 6 months after the first 12-month CD.
  • You will repeat this cycle every 3 months with one of the CDs maturing (like going up the rungs of a ladder). Continue doing so for as long as it remains profitable. 

This process not only takes care of the liquidity problem (since you now technically have access to a portion of your money every 3 months without penalty), but it also ensures that you’ll lock into the latest and greatest interest rates. That’s important, especially when you’re in an environment of rising interest rates.

Whether you’re running your own nurse practitioner business or just want to be a savvy investor, both points are critical. You should always have a plan or backdoor to your money if you run into emergency business expenses. Plus, I can’t think of a simpler way to get a short-term, guaranteed return without having to risk playing the stock market.

2 Responses

    1. Ya, a lot of the banks at these interest rates don’t have shorter durations unfortunately…. Marcus from Goldman Sachs currently has a no penality/time frame option

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