Typically you can receive a higher interest rate on an investment if you commit to leaving your money with the bank for a longer period of time. This lack of liquidity causes many people to choose shorter-term investments at the expense of receiving the higher interest rates. Investment laddering is a strategy that gives you the benefit of receiving the higher interest rates of longer term investments but still provide you with some liquidity. For example, rather than invest $60,000 for a one-year period and renewing each year at a lower one-year rate, you could create a three-year ladder and put $20,000 in a one-year investment, $20,000 in a two-year investment and $20,000 in a three-year investment at the higher interest rates. After the first year, you take the one-year investment and purchase a new three-year investment. After the second year, you take the initial two-year investment and purchase a new three-year investment, and do the same with the initial three-year investment. Starting in year four, all three investments will be earning a three-year rate but you will have access to one-third of your money each year without penalty. Use this calculator to determine the additional interest you could earn with an investment laddering strategy.
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