CD Laddering


Did you know that State Farm does much more than insurance?

This morning, local State Farm Agent Hugo Gonzalez gives some investment tips (for those with any money left over to invest!)

Is CD Laddering Right for you?

cd-ladderingWith the recent volatility in the stock market, people are hesitant to put their entire nest egg into the market. Additionally, with the economy creating tight times for families, it’s often necessary to make sure funds are available if and when we need them. For those investors who are either reluctant to jump head first into the market or those who may have a need for cash, the strategy of laddering Certificates of Deposit (CDs) may be appropriate.

CD laddering is the process of structuring your investment into CDs to take advantage of the higher rates afforded by longer-term time deposits, yet maintaining liquidity by arranging it so that equal portions of the invested money is available periodically. To accomplish this, you begin by buying numerous CDs with various maturities.

For instance, let’s say you have $15,000 to invest. Rather than investing the $15,000 in one CD that maturates at a designated time, by laddering CDs, you may choose to invest $5,000 in each of three separate CDs. In this example, you would then purchase a 90-day, 180-day and a 1-year CD in equal amounts of $5,000. After 90 days, when your first CD matures, you would invest in a new 1- year CD. Every 90 days, a CD will expire and, if the funds are not needed, they will be reinvested in a new CD to take advantage of the higher interest rate.

This approach allows you the comfort of knowing that a CD will mature every 90 days in case you need the money, yet still take advantage of the higher rates typically offered for longer maturities. Staggering your maturity dates also helps smooth out the volatility of the market. If interest rates rise during the year, you will have money available to invest in a higher rate CD. Or, if rates fall, only a portion of your investment dollars will need to be reinvested at the lower rate.

CD laddering may be a strategy that’s appropriate for your lifestyle. Plus, with the guaranteed interest rate offered on CDs, you will be able to plan your future with confidence. Talk to us for more information.

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There is a good tool for this at