So if you have read many of the personal finance books or blogs out there, there are a few common elements to personal finance health. One of those is this notion of having a 6-month emergency fund in savings as a safety net. While I can’t disagree with this foundational advice, I would propose that you do this via a CD Ladder setup versus just holding the money in a simple savings account. In addition to a slightly higher interest rate, a CD Ladder can replicate the monthly income that you receive if you did ever have to draw on this due to an unplanned job loss.
There are many ways to setup a CD ladder, but the intent of this post is to gain a little more interest while duplicating the effect of receiving a monthly income amount from your emergency in the event of a job loss. So with that, I will show you how to setup a 6-month CD ladder.
The first key step is to find out which financial institution you would like to use for the CD ladder. Some will consider using their current bank to open the CD’s at to help keep their accounts consolidated. Others chose to see which institution offers the highest rate for a 6-month CD to maximize their interest. Although I see the benefits of either way, I prefer to open with the same bank that I have a checking account, allowing me to transfer funds quickly in the event of the emergency.
After deciding which bank, the rest of the setup is pretty straightforward. To take action, you will need to complete a 6 month CD application for 6 months in a row
April 2019 (Month 1) : Open up a $2,000 6 month CD
May 2019 (Month 2) : Open up another $2,000 6 month CD
June 2019 (Month 3) : Open up another $2,000 6 month CD
July 2019 (Month 4) : Open up another $2,000 6 month CD
August 2019 (Month 5) : Open up another $2,000 6 month CD
September 2019 (Month 6) : Open up another $2,000 6 month CD
October 2019 (Month 7) : The Month 1 CD will mature and roll into another 6 month CD unless you need it
Also to note, in the above example I am assuming that you have about $2,000 in monthly expenses. And if you already have the $12,000 stashed in a simple savings account, it will take 6 months to have the CD ladder setup completely. But if you are like most of us, you only have a fraction of that, I would recommend taking the amount you do have and spread it over the 6 month period. And then from there, when they roll over you can add a little more to it and build up to the your target amount over time.
As always, here are some other resources available to help:
What is a CD Ladder by NerdWallet
The Ultimate Guide to CD Ladders by MagnifyMoney
The Pro’s and Con’s of a CD Ladder by SmartAsset
I am a finance professional with over 20 years of experience and very passionate about all topics related to finance; enjoying the aspect of teaching and educating others along the way. All in all, I will show you how big this money tree can get over time as I get the branches (Earn, Save, Invest) as high as possible…Click here to see my financial progress to date: How high is the Money Tree?
