067 - Build a CD ladder

We don't want to limit our investments to stocks and bonds. There are other ways to sock away money and earn a little interest.

This isn't intended to be a primer on investing. This is simply one of my 101 in 1,001 goals.

While we'll keep most of our money in growth investments, we do want to earn a little in a relatively safe, insured investment.

A good vehicle for that is a certificate of deposit, or CD. CDs are issued by banks and credit unions or other savings and lending institutions, though only banks are FDIC insured.

When you buy a CD, you are really loaning money to the bank in return for your principal plus interest. Very similar to a savings account, except that you can't withdraw the money until the CD matures. Because of this, a CD has a higher interest rate than a savings account. CDs can have very short maturity times, such as one week, to longer times of up to 10 years or more. Usually the longer the maturity time, the higher the interest rate. Here's a quick set of tips from the SEC about CD investing.

To spread the risk (and to have a little fun) I set a goal of creating a CD ladder. I planned on investing in four or five CDs. The first CD will mature in 3 months and each CD after would be three months beyond the prior CD.

That means if I bought one today, it would mature in May. CD 2 would mature in August, then CD 3 in November, CD 4 in one year and CD 5 in May, 2009. As each CD matures, we purchase another one that matures 3 months after the last one.

Many people ladder their CDs in yearly increments, but I'm not that patient and I want the thrill of rebuying every three months. This link contains a list of CDs available through Fidelity. Note that they are issued by a wide variety of institutions.

We'll see when I will pull the trigger on this one. The recent market downturn has taken chunk out of the old net worth. Plus, other goals are for other investments.

We're not putting all of our money into a 3.1% CD. Just a little bit.

Have you purchased CDs before? Kind of boring, isn't it?