One drawback to C.D. laddering is that you must keep track of the various certificate maturity dates and research interest rates before rolling your money into a new C.D. “You constantly have a C.D. maturing,” said Ken Hoyt, a fee-only financial adviser in Westford, Mass.
Doing the research means you’re not held hostage to a below-market rate. But ladders can be a chore to manage, he said, especially if you are juggling many certificates. “To me,” Mr. Hoyt said, “ it’s more of a hassle than it’s worth.”
It’s wise to check the details before depositing your cash. Some higher-rate C.D.s have substantial minimum deposits, and there’s generally a penalty if you withdraw the money early.
Here are some questions and answers about C.D.s and laddering:
Are C.D.s suitable for holding emergency funds?
That depends. Having money locked into a C.D. for a fixed period of time means you may be less likely to spend the money on nonemergency items. But penalties can be hefty if you need the cash quickly and withdraw funds before the certificate matures. Some longer-term C.D.s charge as much as a full year of interest. And if you withdraw your money so early that you haven’t earned enough interest to pay the penalty, some C.D.s will bite into the principal to cover it — meaning, you could actually lose money on what’s supposed to be a sure bet.
“For a rainy-day fund,” Mr. McBride advised, “keep it liquid.”
Mr. Horymski suggested that if you think you might need some of the money in the short term, you could still build a C.D. ladder — just use a high-yield savings account in place of the initial, one-year C.D. Many online banks offer savings accounts paying more than 2 percent so you won’t be sacrificing much interest. That way, you can withdraw some money if needed, without fear of paying a penalty.
You also can build a ladder with fewer “rungs” if you prefer — you just may not get the highest, longer-term rates. One option may be to start with a six-month C.D., and add C.D.s in six-month increments (12 months, 18 months, etc.), to reduce the length of time your money is restricted.
Do all of the C.D.s in my ladder have to be housed at the same bank?
No. You can hold the C.D.s in your ladder at multiple banks to get the best terms possible.
Can I ask for a higher rate, after I deposit cash into a C.D.?
Generally, no. Some banks do offer a 30-day window after you make an initial deposit during which you can get a higher rate. And there are two types of C.D.s that offer more flexibility, said Arielle O’Shea, a banking specialist with the website NerdWallet. “Bump up” C.D.s allow you to request an increase during the term of the certificate — typically, just once. And “Step Up” C.D.s come with rate increases that occur automatically. The downside? You’ll generally get a lower rate to start with, she said.
