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The Best Way to Break Your CD Ladder

By Staff
Certificate of deposit (CD) ladders are constructed to let you access a portion of your money as the various CDs mature at set intervals. If all goes well, you can choose to divert the money from a maturing CD to a different, investment, or you can roll it over into a new, long-term CD. But even the best-laid plans can sometimes break down, and you may find yourself needing money before your next CD matures. You'd have to cash out one of your CDs prematurely, and your best choice is usually sacrificing the weakest rung in your ladder.

As interest rates fluctuate over time, some of the CDs in your ladder will earn higher rates than others. The penalty for withdrawing money from a CD before it matures is based on the interest rate, which typically ranges from a few days’ to a few months' worth of interest, depending on the bank and the duration of the CD.  If you have to incur a penalty, you'll want to pay as small a penalty as possible. That often means choosing the CD with the lowest interest rate.

"Choosing which CDs to break on your CD ladder is the same as choosing which rungs to replace on a real ladder," says Dylan Ross, a certified financial planner and founder of New Jersey-based Swan Financial Planning. "You don't want to replace the best rungs that earn you the most interest just as you wouldn't replace the sturdiest rungs on your real ladder."

An added benefit of targeting the weakest rung in your CD ladder is the opportunity to replace that low-earning CD with one with a better interest rate. This is especially true if you only need the money as a short-term bridge until your next paycheck or your tax refund arrives. In that case, Ross recommends replacing the missing rung on your ladder as soon as possible. To do that, shop around to find the best rates in your area.’s CD section lets you find offers from regular brick-and-mortar banks, such as Bank of America (Stock Quote: BAC) and Citibank (Ticker: C), as well as online banks like Discover (Ticker: DFS).

"Choosing which CDs to break will vary from situation to situation," says Ross. "But you'll rarely have to bust apart your whole ladder. In most cases, you'll be able to meet your needs by taking out whichever rung -- or rungs -- is the weakest."

For more on CD laddering:
“Parallel CDs: An Alternative to Ladders”

“Building a CD Ladder for Steady Income”
“Setting the Strongest CD Laddering Strategy”

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