A Sample Laddering Strategy

Let's walk through a real life example using the interest rates available at the time we wrote this. You'll get the idea, even if the numbers slightly change by the time you decide to employ this strategy.

Say you have $25,000 to invest in CDs, and you want to ladder the maturities. Here's one way you could do it (your cash needs may dictate a different weighting, but you get the idea):

• $5000 in a 6-month CD yielding 3.20 %
• $5000 in a 1-year CD yielding 3.60 %
• $5000 in a 2-year CD yielding 3.77 %
• $5000 in a 4-year CD yielding 4.00 %
• $5000 in a 5-year CD yielding 4.31 %

That's it. Your ladder is now in place!

Your next step is simply to watch interest rates with an eye toward what you want to do when the next CD comes up for renewal.

If interest rates have gone up, you could purchase a new 5-year CD and lock in the better rate if it's one you're happy with. If interest rates have dropped, that's OK, since 80% of your CD investment was locked in when the rates were higher. In this case, it may be best to just reinvest the money into another short-term CD.

Dolan Straight Talk Tip: You can also build "shorter" ladders if it makes sense for your cash needs and given what interest rates are doing at the time. For example, you could build at one-year ladder with 3-, 6- and 9-month and 1-year CDs.

One of the best places to search for CD rates being offered in your state and nationally is www.bankrate.com.

CD laddering is a nifty strategy we like very much for conservative, income-oriented investors. We think its one that makes a lot of sense as a low-risk way to produce income for a portion of your investable funds – especially in volatile times like we're in now.

Happy laddering!

For more on how to boost your profits, check out these links:

• Boost Your CD Yields
• Bigger Profits With Less Risk?
• Dolans' 10 Simple Rules of Investing

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