The Single Best Way to Make Money Investing in CDs in 2024


A glass jar full of bills and coins
A glass jar full of bills and coins

Image source: The Motley Fool/Upsplash

Are you interested in investing in certificates of deposit (CDs)? Buying CDs could be a good idea right now because rates on CDs are higher than they've been in decades. There are a ton of CDs to choose from, though. So deciding on an investment strategy can be confusing.

But there's one simple approach that's worked for countless CD investors that you can try, too. And given today's market conditions, it may be the single best strategy to set yourself up for success.

Try this CD investing strategy

The strategy you should try is called CD laddering. Instead of buying one CD, you build a "ladder" with multiple CDs making up different rungs. Each CD has a different maturity date. Here's what a CD ladder could look like:

  • You could buy a 1-year, 2-year, 3-year, 4-year, and 5-year CD

  • You could buy a 3-month, 6-month, 1-year, 18-month, and 2-year CD

These are just two sample combinations. You could set the rungs on your ladder as far apart as you want by picking different combinations of term lengths. The key is to have CDs maturing on a predictable schedule so you always have some money coming back to you that you can reinvest.

Why is CD laddering a great strategy?

CD laddering is a great strategy for a few reasons.

  • You aren't locking up money for as long. You always have some CDs maturing pretty soon, in case you need the money. You could spend it, move it to a checking or savings account, or reinvest it in a new CD.

  • You'll get the benefits of both short-term and long-term CDs. Short-term CDs give you more liquidity. You also take on less interest rate risk. If rates happen to go up, it's only a few months until you can get your money back and buy a new CD at a higher rate. Long-term CDs, on the other hand, lock in at today's yields so you're protected against interest rates falling. Long-term CDs also usually offer higher rates than short-term options. With a CD ladder, you get the benefits of both of these types of investments.

  • You limit risk. If rates go up, you'll have CDs maturing in a short time. When they mature, you can use the money from them to invest in the higher-yield CDs that should be available. If rates go down, you have some of your money locked in at the higher rates, thanks to your long-term CDs.

CD laddering makes sense in almost all economic conditions. It's an even better deal right now than usual, though, because short-term CDs are offering higher rates than long-term ones. You normally have to accept lower rates when you include those in your ladder, but the point of doing so is to get more liquidity and access to your money.

Right now, short-term CDs are paying better than long-term CDs because most banks expect the Federal Reserve to lower interest rates soon. So there's no trade-off; you get the liquidity of short-term CDs, but don't have to accept a lower yield in exchange for the ability to access your money. Long-term CDs are also offering generous yields (although not quite as high) so you can lock those in, too. Every rung on your ladder will provide great returns.

Building a CD ladder makes more sense than ever in 2024. Check out the best CD rates at different terms so you can find the right certificates of deposit to buy and build your ladder today.

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