Combining long- and short-term Certificates of Deposit (CDs) can help address the issue of early withdrawal penalties through a technique known as "CD laddering."
For example, rather than put $40,000 into a four-year CD, you might put $10,000 each into four separate CDs—a one-year, an eighteen-month, a three-year and a four-year. When the first CD matures, you reinvest it in a four-year CD, repeating the process with the others as they become due.
The rotation provides you with regular access to your money in the event that you need to handle an emergency expense, and for retirees, it can help ensure that cash is on hand when needed for living expenses.
A CD ladder can cover whatever time frame the individual wants. Ally's CDs are available in a wide range of terms so you can build a CD ladder that best suits your needs. If you'd like to be able to access your money earlier you can use three-, six-, or nine-month CDs. It is not uncommon for retirees to build a four- or five-year CD ladder, but there's nothing wrong with a 15-year time frame, using a combination of CDs and, for the very long term, treasury bonds. The idea behind a CD ladder is that it can function like a rock-steady income stream.
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