CD Ladder

A CD Ladder is an investment strategy in which a series of fixed income investments such as CDs are structured to maximize liquidity and interest income.

For example an investment of 60,000GBP could be made by investing 10,000GBP in a 30 day CD, 10,000GBP in a 90 day CD, 10,000GBP in a 6 month CD, 10,000GBP in a 12 month CD, 10,000GBP in a 24 month CD, and 10,000GBP in a 36 month CD.  In this case, the 30 day CD would be cash ready and available for use in 30 days at maturity.  If the money was not needed by the investor, the investor would then reinvest the CD for another 30 days.  The same would be done for each maturity date of all other CDs.  In this way, the investor could count on the availability of the cash at the maturation dates.  At the same time, he would be able to capture the highest amount of interest income, because traditionally the longer the term for CDs, the higher the interest rate.