How to Build a CD LadderMarriage is all about expanding your resources.

Doing more with two than you ever could have with one. Combining energies, passions, skills, and enthusiasms into a happy home, a new family, and a productive life.

Money, on the other hand, often threatens happy marriages because it is viewed as something that diminishes resources.

Even couples with two good salaries report feeling the financial pinch every month. It can be hard sometimes to look at your bank balances and your retirement accounts and think “aren’t we supposed to have more?”

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Well, this is where you have to get really savvy with your money. There are ways to expand your financial resources as a couple, but you have to be ready to plan and allocate your money in a way that will get you the maximum net return.

Today, we’re going to look at one way to expand your financial resources in 2014: building a CD ladder. If you take the time to construct a good CD ladder with high interest rates, you can spend much of next year letting your money expand for you.

What is a CD ladder?

A CD ladder is a way to invest your money for a guaranteed return. CD ladders are often better investments than stock market investments for two reasons:

1. When you invest in CDs, you know exactly what your return will be.

2. With a CD ladder, you always have liquid cash available when you need it.

If you and your spouse have been avoiding investments after seeing people’s nest eggs get decimated during the economic crash of the last decade, or if you simply don’t want your emergency fund and savings tied up where you can’t get them when you need them, a CD ladder solves both of these problems while allowing your money to work for you and grow.

How does a CD ladder work?

First, you and your spouse need to look at available CD rates and term lengths. These are the guaranteed rates of return that your money will receive if it is placed in a CD — or certificate of deposit — for a specific amount of time. 6-month CDs earn more money than 3-month CDs, and 12-month CDs earn more money than 6-month CDs.

On the page describing CD rates from Discover Bank, there’s a huge note for would-be CD investors: “It’s important to consider what you’re saving for and when you will need the funds when selecting the best CD rate and term for you.” Finding the highest CD rates is important, but it’s also important to plan when you think you’ll need your money. If you put your entire emergency fund in a 12-month CD, but need a new car transmission in month 6, you haven’t made a good financial decision.

A good rule of thumb for first-time CD ladderers is to space your CDs by three months. Buy a 3-month CD, a 6-month CD, a 9-month CD and a 12-month CD. That way, you have a large chunk of your savings coming back to you every quarter with, of course, the guaranteed CD return added on.

But here’s the magic of CD ladders. Let’s say you get that 3-month CD back and you don’t need the funds for an emergency. Now you get to take that money and invest it in a 12-month CD with the high guaranteed return. Same with that 6-month CD; in fact, every CD you don’t spend gets reinvested into a 12-month CD. After a year, all of your CDs are now returning the highest rate, and you still have liquid cash available every three months.

Safety and security

Are CDs safe? Absolutely. But you need to read the fine print. Here’s what the FDIC has to say: “Before establishing a CD account, make sure that the issuing bank has clearly identified the account as a “deposit” which is subject to FDIC deposit insurance.” You also need to understand exactly when you will be paid your interest, which parts of your interest are subject to tax, and whether there are penalties for early withdrawal of your funds.

If you have questions about CD laddering, talk to a representative at your bank, or to your financial adviser. They’ll be able to help guide you to the best CD ladder for your current financial situation.

2014 is just around the corner, which means it’s time to start thinking about your financial plans for the next year. Talk to your spouse about your available financial resources, and whether a CD ladder might be a good way to expand them. Remember that if you are able to keep the ladder going for a number of years, your resources will continue to expand and your finances will continue to grow.

This post was written by guest columnist Christine Michaels.


About the author 


Dustin Riechmann created Engaged Marriage to help other married couples live a life they love (especially) when they feel too busy to make it happen. He has many passions, including sharing ways to enjoy an awesome marriage in 15 minutes a day, but his heart belongs with his wife Bethany and their three young kids.

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