Building a Better CD Ladder Online

With many baby boomers saying “never again” to stock market risk, interest in low-risk investments is increasing. One safe investment strategy being followed is CD laddering. I’ve learned about an online tool that can make it easier to build and optimize a CD ladder.

What is a CD Ladder?

Simply put, a CD ladder is built by taking a lump sum of cash money and investing it in multiple certificates of deposit having different maturity dates. This is supposed to provide a predictable cash flow.

Having CDs staggered with different maturity dates allows you to take advantage of more favorable interest rates in the future without having all of your money locked in at one rate. For most people who ladder CDs, when one CD matures the principal is reinvested and the ladder is maintained.

The CDs in the ladder should be purchased from FDIC member institutions. This makes the ladder a no-risk investment, unless our government itself crashes.

Build a Better CD Ladder Online

Most folks who use CD ladders tend to find one bank with decent CD rates and purchase all of the laddered CDs from that bank. The investor may consult a resource like bankrate.com to find the institution with the best rates. That may not be the way to get optimal interest rates for each CD in the ladder.

This brings me to MoneyAisle a unique financial site that can provide an online path to a better CD ladder. Simply put, MoneyAisle lets users submit their CD criteria (amounts and durations) to the system, after which participating banks commence bidding up interest rates in an auction. It happens quickly and the results are impressive. It’s also free to use.

The real advantage for CD laddering is that MoneyAisle helps you spread the CD ladder across multiple banks.  Here is how it is explained:

Once you’ve elected to Build a Ladder, you’ll be presented with a table. Simply fill out the deposit amounts for each duration you would like to include in your Ladder.

You can currently deposit up to $500,000 per ladder, spread across multiple durations. If you want a 3-month CD and a 60-Month CD you can do that, or you can, for example, run an 18-month CD, a 9-month CD, and a 3-month CD. Just make sure you’ve filled in a Deposit Amount for each account you would like included in the Ladder before running the Ladder auction.

There are also advanced laddering options that give you more control over how much money is directed to a single bank and/or how many CDs are placed at each maturity date.

Not every bank participates yet but during my test, I had 17 auction bidders for a $5000 12-month CD. The winning rate was very good compared to local published rates.

Final Thoughts on Building a CD Ladder Online

Knowledge is power in finance and MoneyAisle seems to deliver a large dose of both. Check out this video where an AP finance writer performed a variety of comparison tests using MoneyAisle.

(RSS or email readers may need to click through to see the video.)

If you are interested in laddering in general as a low-risk financial strategy, you should also look at Treasury ladders and annuity ladders.

Photo credit: Kathyrnaaker

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