February 21, 2024

CD Laddering or Flexible CDs – Which is More Beneficial?

CD LadderingFor a long time certificates of Deposits (CDs) were seen as a valuable investment strategy. Then initial rates plummeted and investors become wary of them. But times are changing for the CD as bank and lending institutions are coming up with creative and nontraditional ways to entice consumers. These nontraditional CD accounts are striving to solve the problem of standard CDs, namely the rigid account structures and the lack of flexibility in the face of rising market rates.

Whether you’re a traditionalist or you want something new, there are two main strategies that are helping people make money with certificates of deposit and they are CD laddering and flexible CDs.

CD Laddering

For people who want to stick with standard CDs, but who aren’t getting the returns they want because of low interest rates, there is an investment method known as CD laddering. The way laddering works is by investing different sums of money in multiple CD accounts, each of which has a different maturity date. This way you are constantly earning interest and reinvesting funds to earn even more. Plus if the market rates go up while your funds are locked in you can take the money from whatever account matures first and transfer them over to an account with the better rates.

Flexible CDs

The biggest argument for flexible types of CDs is that they offer much more flexibility and control for an investor over his or her account. Two main types of flexible CDs are liquid CDs and bump-up CDs.

  • Liquid – One big problem people have with traditional CDs is that if, for whatever reason, they need to cash in early and get their money back they will be weighed down with heavy early withdrawal penalties. A liquid CD, also known as a no-penalty CD, allows the investor to liquidate the CD and remove the funds early without a penalty. This sounds great, but just be aware that this type of CD may come with limitations on the number of times you can withdraw and how much you can take out.
  • Bump-Up – Another problem investors have with standard CDs is that once you invest in one the rate of interest is locked in, even if the market rates rise during the term of the CD. It can be very frustrating to see much better rates and not be able to do anything about it. Bump-up CDs give investors the ability to bump up the interest rate on their account whenever they want. The only downside is that there is a limit on how many times you can bump up an account. But smart investors who are closely paying attention to the market should have no problem with this.


CD Investing StrategiesReally each investment strategy has its own pros and cons, and which will benefit you more depends on what you want from your investment. Flexible CDs offer, as the name says, a lot of flexibility and options on your account. But they are also not as familiar to people, are constantly changing, and their terms and conditions can be complex and differ from lender to lender. If this makes you nervous and you’d rather stick with the tried and true then CD laddering is a great investment alternative.