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Assume one has a CD ladder with 5 certificates -the longest CD matures in 5 years, the shortest in 1- each with a $2000 initial deposit.

Should additional deposits be evenly distributed amongst them? If not, then how should they be distributed?

MrChrister
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MadDash
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1 Answers1

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All other things equal, you should add additional deposits into the CD with the highest APY. Generally speaking, this will be the CD with the longest term.

For people with CDs that don't allow additional contributions, you would save your deposits until your next CD expires, then combine the returns from the CD with your saved deposits and purchase a new CD with the longest timeframe you're able to tolerate.

Using your example, and assuming you want to contribute an additional $500 annually:

Initially:
CD-A (1y)   CD-B (2y)  CD-C (3y)  CD-D (4y)  CD-E (5y)
    $2000       $2000      $2000      $2000      $2000
After one year:
CD-B (2y)   CD-C (3y)  CD-D (4y)  CD-E (5y)  CD-F (5y)
    $2000       $2000      $2000      $2000      $2500
After two years:
CD-C (3y)   CD-D (4y)  CD-E (5y)  CD-F (5y)  CD-G (5y)
    $2000       $2000      $2000      $2500      $2500
...
After five years:
CD-F (5y)   CD-G (5y)  CD-H (5y)  CD-I (5y)  CD-J (5y)
    $2500       $2500      $2500      $2500      $2500
After six years:
CD-G (5y)   CD-H (5y)  CD-I (5y)  CD-J (5y)  CD-K (5y)
    $2500       $2500      $2500      $2500      $3000
...

Obviously the CDs are also earning interest over this time, but the point is the amount you've contributed to the ladder grows over time.

dimo414
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