Hey guys, it's Tommy
Bryson here, and in this video, I'm gonna break down
exactly what a CD ladder actually is. I'm gonna show you how to build one, and I'm gonna tell you if
it's actually a good investment. Now, let's get right into it. Now, overall, a CD ladder
is exactly what it sounds like. It's basically a
amount of CDs you actually have that mature at different dates, and this way, you start to get paid at certain points in time. So it basically means, okay, if you're gonna open
up a CD ladder of five years, which I will teach
you how to do in this video, you're actually going
to go ahead and basically say, "Hey, year one, I'm gonna
have this much money invested. Year two, this much. Year three, this much. Year four, that much. And year five, that much." Now, obviously, you're going to get paid different amounts of yields, because different banks give you different amounts of money. Usually, the closer
the date is to maturity, if it's like basically a 12-month CD, you're gonna get
paid a little bit more money, but then as further out
as it gets the interest rate or the yield in this case
is actually going to get lower. So the whole idea is, how do you calculate the
overall return on the fifth year CD, and how do you
calculate the overall return on the first year CD, but overall, how do you know how much money you're going to make in total? In this video, we're
going to break everything down. Now, what is the benefit of doing this? Well, basically,
let's say you have, for example, like $10,000, and you
don't want to just grab 10,000 and lock it away for like five years or 10 years in a CD, obviously, and you're basically gonna say, I don't want to wait for
10 years to get my money back. I want to basically
get my money every year or so. So what you can
basically do is just grab your 10,000, divide it by five, or
grab the chunks you want to, and basically just buy five different CDs that mature at different times. This way, you're getting your money back at different points in time and not having to wait
the full five years or whatever. Now, let's go right into how to actually build one of these, okay? I'm gonna show you
everything, and by the way, I will leave a link
in the description down below to actually download this template if you actually want to use it, okay? So there are two
things you actually want to know, so let's go right into it. So over here, we actually
have, on this side of the screen, we have Barclays, as you can see, and over here, we have my template, which is a CD ladder template. I know you can't see everything clearly. Don't worry, I'm gonna
focus in on what we're doing first. The first thing is,
guys, we want to label exactly the amount of time we
actually want to spend with these CDs. As you can see right here in Barclays, they're basically
offering a 12-month CD at 5.35%, and they're going
all the way to 60 months, which is the same as
five years, at 4.40%, okay? Or you can just use, for
example, the APY, doesn't matter. But for the most
part, we're gonna grab over here our CD ladder and say, hey, we're gonna do it for five years. So you have one, two, three, four, five. And then over here, we
have the different amounts of money we're actually
getting, or in this case, the yield. So they're all different. Now, that's all you're
going to need from this website. And now, we're just gonna
be focusing on our entire template. So we're gonna
actually grab this and turn it off, and now here we are. Now, you have year
one, which is basically when the first one's going to mature, but over here, we actually want to put in the total amount of
money we have available. And in this case,
let's say I actually wanna have, I have $25,000, and I wanna use it to have a CD ladder of five years. I'm gonna click
right here, type in my $25,000, ignore everything else. But the overall idea is, in this case, I'm gonna grab 5,000 for the first year. I'm gonna open up
another CD for two years, three years, four years, and five years. And they're all been given just $5,000, which adds up to a total of $25,000, as you can see down here. Now, I don't have to just
have, for example, equal amounts. I could easily just say, hey, I'm just gonna do like a three year one, 5,000, 5,000, and 15,000. That's also a
possibility if you wanna do it. In this case, I'm just doing equal. Now, to calculate exactly how much money each year is actually gonna make me, I'm going to use a
future value calculator. Don't worry, you're
not going to need to do this. But in this case,
we're gonna have the rate. In this case, the
rate is going to be 5.35%. Then we're gonna have,
for example, the number of peers. In this case, it's
just gonna be one year. And then we're gonna
have, for example, payment amounts. We're not making any payments. And the present
value is going to be exactly how much we're going to be investing and how much it's worth right now. In this case, it's going to be 5,000. By the way, again,
if this is confusing you, do not worry, you're
not going to have to do this. It's going to be
done for you automatically. But I do want to teach you how to do it in case you want to do your own thing. This is not just for CDs. You can actually use it for bonds, notes, and treasury bills, okay? To actually create
a treasury bill ladder, a notes ladder, a bond ladder. If you're interested
in watching a video like that, let me know in the comments down below. And then all I have to
do is just basically grab this and scroll down and then boom. It's all been done for me. Now, what this tells me is, okay, as far as, for
example, how much my first $5,000 is going to make me is
going to make me a net amount of $267 at 5.35%. My year three at 4.50%
is going to make me around $700, which is pretty good stuff. And by year five, that
$5,000 actually left in there for five, for basically like five years, would have made me $1,230. But the good thing is that basically, once year one is over, I'm
going to receive $5,265 in cash. I can use this money to reinvest it, or if I have, for example, another idea that makes you more
money, I can use it for that, okay? That's the idea. Now in total, I would
have made from this investment around 3,667%. Now, when you
actually go into this template, you won't have to do any
work, just basically change this. I'll actually make this right here, maybe change the color to yellow. So you only have to change this, okay? So if it's zero,
nothing is going to show up here. You have to put in the interest rates because it all depends on
what you're looking at right now. But after that,
all you have to do is say, "Hey, I'm going to do this, for example, I have $200,000
I'm actually going to do." Well, it's done, it's
calculated for you automatically. Your total profit is
going to be like around $29,000 and you can see exactly how much money you're going to be
receiving every single year right there. It's not that much of a big deal. Everything is going to
be done for you automatically. There is a question. Tommy, do you recommend,
I actually open up a CD ladder, would you actually
open up a CD ladder yourself? The answer is most
likely, absolutely not. I would not open up a CD ladder. Now I am interested into a Roth ladder, but that's another video for another day. And that's a retirement
account that earns me more money. But as far as for example, a CD ladder, I honestly don't see the value, you know? It's not that much money. It's like a four to 5% interest rate. I could earn more money
by putting my money, for example, into stocks around like eight to 12%. And I'd rather that than
having a secure locked in 4%. Now, if you have, for
example, millions of dollars, what do you recommend a CD then? The answer is I
would not recommend a CD then because this stuff is
not going to be fully covered if the bank does go down and burn. Because again, it is
FDA-insured, but only up to 250,000. So what would you do then? I would probably do
a bond ladder, you know? Or for example, a note ladder. Having it, for example,
one at one year, one at two year, one at three year, four year, and so on. But you do have to buy it, for example, on the open market overall. So keep that in mind. But that's another video for another day if you're interested in that. But I made this video just so you know how a CD ladder works. But once you know how it works, you should also understand
that this is not a good investment. It's a poor way to actually make money. And would I put my money, for example, for emergencies in there? The answer is no. Would I put money I want to park in here? The answer is yes, depending on the rate. But I wouldn't do like, me personally, I wouldn't go past two years, you know? Unless it's like, I'm
earning like six to eight percent on a CD, which I
hope never to be doing that because that means
basically it gets super expensive to borrow money. And that's not
something you actually want for the economy overall. But yeah, that's it. Guys, thanks for watching this video. If you got value, do me a favor and subscribe to the channel. Hit the bell so you get notified when I post another video. On top of that, join us on Patreon for exclusive content. The link is down below. Here are the members at Patreon and here's the
highlighted person for the day. As always, thanks for watching. Up here is another video. Over here is my face and long-term team officially out.