Carmen often recommends her viewers look into certificates of deposit (CDs) as a type of investment that offers some much-needed protection from volatility in the market. On Monday, she explained how using a laddered approach to your CDs could pay off.
The concept is relatively simple: Instead of investing entirely into one CD, spread out your money over time. Not only can you lock in better interest rates with longer-term CDs, you will also keep a steady flow of liquid funds because they will mature at different times.
Many different banks offer CDs with different rates. How do you know if laddering your CDs is the right option? For one, it’s a good compromise if you can’t decide between long-term or short-term CDs or if you can’t lock up all your money for too long. One study showed that laddering yields better returns than simply using one type of CD nearly two-thirds of the time, Carmen said. Another benefit to laddering is that if rates go up, you will have money that you can put back to work and you can take advantage of higher yields. And if rates go down, you will have already locked in the higher rates.
Bottom line? If you’re looking for a relatively safe way to invest while staying diversified, consider climbing the CD ladder.