CD laddering in two minutes

A simple way to understand CD ladders

Now, I know I’ve covered CD laddering before, but I found this great clip from Bill Gerhard, Director of Financial Services at AAA, that makes understanding a ladder very simple. Gerhard lists the benefits of the laddering strategy, which include:

• Protection for low interest rates during an economic lull
• Easier access to higher CD rates when rates are climbing
• Increased liquidity – at least one CD will always be approaching maturity

Gerhard goes further and actually uses a chart to detail a 3-year CD ladder that highlights how the ladder works. Click play, and you’ll be on your way to mastering this strategy in two minutes!

Why CD rates matter in 2012

While some readers have written me asking why in the world they would want to invest in CDs with such low interest rates, I feel like now is a great time to compare CD rates. Why? Because the economy still isn’t stable. Sure, everyone would love to reap great returns from the stock market, but let’s face the reality: the stock market is shaky due to fears of the economic crisis in Europe. CD rates may be low, but one of the biggest selling points of a certificate of deposit is the assurance that you will not lose any of your principal investment (provided, of course, that you don’t remove your funds prior to maturity and incur and early withdrawal penalty).

What do you think? Do you have plans to open a new certificate of deposit in the New Year?