How Much Money Do You Need to Build a CD Ladder?

A CD ladder allows you to take advantage of the high yields that certificates of deposit (CDs) are currently offering while still keeping your money pretty accessible. But is CD laddering a good strategy for you, given your current financial situation and how much money you can afford to invest?

Here's what you need to know.

How to build a CD ladder

Building a CD ladder involves buying multiple CDs that mature at different times. For example, you might buy a 1-year CD, 2-year CD, 3-year CD, 4-year CD, and a 5-year CD. Or you might buy a 3-month CD, 6-month CD, 10-month CD, and 12-month CD.

When you buy CDs with different term lengths, you'll regularly have one maturing so you'll have more access to your funds if you need it. You'll also hedge your bets on whether interest rates will go up or down, since you'll have some short-term investments and some longer-term ones.

Of course, buying multiple CDs is going to require money, but perhaps not as much as you'd think. Many banks don't have minimum investment requirements to buy a certificate of deposit.

How much do you need to build your CD ladder?

Generally, when you build a CD ladder, you put the same amount of money in each of the CDs. And while your ladder can have as many "rungs" or different CDs as you want, it usually makes sense to have at least three to five to diversify your holdings and benefit the most from this strategy.

Theoretically, you could do this with $50 or even $100. You could put $10 or $20 into five different CDs that mature on your set schedule. And if that's all you have, then it can still be worth doing to take advantage of the great rates available today and help you get started with this investing strategy.

However, if you want the broadest access to certificates of deposit at the best rates, then you'd usually want to aim to have a little bit more money to invest so you'll have more choice as to what to invest in.

While it's possible to find options with no minimum balance requirements, you'll definitely have more choices (and sometimes better choices) if you can deposit at least $500. If you decided on that amount, you'd need $2,500 to build a ladder with five different CDs.

Be careful about tying up too much cash

You don't want to put money into any CD if you aren't confident that you can keep the funds invested for the duration of the CD term. So if you only have $100 or $500 that you are confident you can lock up, you shouldn't stretch to find more cash only to risk ending up with a penalty for an early withdrawal.

Now, the good thing about a CD ladder is that you'll have CDs regularly maturing at different times. That makes it a little easier to find funds that you can use compared with just buying, say, a 5-year CD and knowing you couldn't touch any of those funds for half a decade.

Ultimately, building a CD ladder is a great way to capitalize on today's high rates and give yourself some flexibility. Even if you don't have a ton of money, it can still be worth using this strategy. But being able to invest at least $500 in each of the CDs you buy is a good goal to shoot for to make sure you have a broad choice of CDs at different term lengths paying great rates.

Once you've decided how much you can invest, check out The Motley Fool's Ascent's guide to the best CD rates to find the CDs that could help you build a CD ladder.