A CD (Certificate of Deposit) ladder is a popular investment strategy designed to maximize interest earnings while maintaining access to your funds. It involves dividing your total investment into several CDs with staggered maturity dates. This approach allows you to benefit from the higher interest rates typically offered by longer-term CDs, while also providing regular access to a portion of your funds as shorter-term CDs mature.
How a CD Ladder Works
Imagine you have $25,000 to invest. Instead of putting it all into one 5-year CD, you could create a 5-rung CD ladder:
$5,000 into a 1-year CD
$5,000 into a 2-year CD
$5,000 into a 3-year CD
$5,000 into a 4-year CD
$5,000 into a 5-year CD
When the 1-year CD matures, you can then reinvest that $5,000 into a new 5-year CD. The following year, the 2-year CD matures, and you reinvest those funds into another new 5-year CD, and so on. After the initial cycle, you will have a CD maturing every year, and each new CD you purchase will be a longer-term CD, ideally locking in higher rates.
Benefits of a CD Ladder
Higher Interest Rates: By including longer-term CDs, you can often secure better Annual Percentage Yields (APYs) than with short-term CDs.
Liquidity: The staggered maturity dates ensure that a portion of your investment becomes available at regular intervals, providing access to funds without early withdrawal penalties.
Reduced Interest Rate Risk: You're not locking all your money into one rate for a long period. If interest rates rise, you can reinvest maturing CDs at the new, higher rates. If rates will fall, you still have some funds locked into older, higher rates.
Using the CD Ladder Calculator
Our CD Ladder Calculator helps you plan your strategy by estimating the investment per CD, the APY for each rung, and the potential interest earned during the initial cycle. Simply enter your total investment, the desired number of CDs in your ladder, and the shortest and longest CD terms and their corresponding APYs. The calculator will then provide a detailed breakdown of your ladder.
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function calculateCDLadder() {
var totalInvestment = parseFloat(document.getElementById("totalInvestment").value);
var numRungs = parseInt(document.getElementById("numRungs").value);
var shortestTermYears = parseInt(document.getElementById("shortestTermYears").value);
var longestTermYears = parseInt(document.getElementById("longestTermYears").value);
var apyShortest = parseFloat(document.getElementById("apyShortest").value);
var apyLongest = parseFloat(document.getElementById("apyLongest").value);
var resultDiv = document.getElementById("result");
resultDiv.innerHTML = ""; // Clear previous results
// Input validation
if (isNaN(totalInvestment) || totalInvestment <= 0) {
resultDiv.innerHTML = "Please enter a valid Total Investment Amount.";
return;
}
if (isNaN(numRungs) || numRungs <= 0) {
resultDiv.innerHTML = "Please enter a valid Number of CD Rungs (at least 1).";
return;
}
if (isNaN(shortestTermYears) || shortestTermYears <= 0) {
resultDiv.innerHTML = "Please enter a valid Shortest CD Term (in years).";
return;
}
if (isNaN(longestTermYears) || longestTermYears longestTermYears) {
resultDiv.innerHTML = "Shortest CD Term cannot be greater than Longest CD Term.";
return;
}
if (isNaN(apyShortest) || apyShortest < 0) {
resultDiv.innerHTML = "Please enter a valid APY for Shortest Term (%).";
return;
}
if (isNaN(apyLongest) || apyLongest < 0) {
resultDiv.innerHTML = "Please enter a valid APY for Longest Term (%).";
return;
}
var investmentPerCD = totalInvestment / numRungs;
var ladderDetailsHtml = "