How to Ladder your savings in Certificates of Deposits (CDs) in order to have cash on hand during a period of unemployment

You may or may not know this, but you should have 3 to 6 months worth of savings available just in case you lose your job. This means that if your monthly expenses are $2,000, you should have between $6,000 and $12,000 saved up for quick access. The money should be in low risk, instant access accounts for easy withdrawal.
With the very low rates for checking, savings, and money market accounts, you really don’t want to keep your money in those. CDs or Certificates of Deposit offer a higher yield but your money is locked in until the CD matures. So, if you put all your free cash in one CD, it will be locked away for the term of the CD unless you cash it out early. Most banks forfeit your interest if you cash out a CD early.
There is a way to use CDs in such a way (called laddering) that you will have a portion of your money available every month and you will be getting a higher interest rate than a savings or checking account.

Assuming your monthly expenses are $2,000 and you have $12,000 available, here is what you do.

Difficulty: Easy

Instructions

Things You'll Need:

• Cash on hand
• Customer Friendly credit union or bank that doesn't charge you fees.

1. For month 1, open a CD for $2,000 with a 6 month Term. Be sure to reinvest the interest so you benefit from compounded interest.

2. For month 2, open up another CD for $2,000 with a 6 month term.

3. Repeat this for months 3 through 6. So, at the end of month 6, you will have 6 $2,000 CDs.

4. For month 7, the CD you created in Month 1 will mature. Just reinvest the total amount (including the interest) in another 6 month CD.

5. For months 8 through 12, when the CD matures, just reinvest the total amount in another 6 month CD.

6. Keep this up even after month 12. Just reinvest the CD every time it comes due. If you lose your job, you will have 6 months in a row where you can cash out a CD each month to pay for monthly expenses.

Tips & Warnings

• If you have more money, you can create more CDs. You can break them down so they come due once every 2 weeks or 3 weeks. It is all a matter of when you open the CDs.
• If you have less than the 6 months worth of cash, you probably shouldn’t do this, but instead save up until you get the right amount.
• I’m not a financial advisor, so follow this tip with care. This has helped me get through being unemployed.