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Assume one has a CD ladder with 5 certificates -the longest CD matures in 5 years, the shortest in 1- each with a $2000 initial deposit.

Should additional deposits be evenly distributed amongst them? If not, then how should they be distributed?

  • 3
    Is it even possible to make additional deposits into the existing contracts? – a CVn Jul 6 '13 at 21:10
  • With Navy Fed, as long as you don't hit the maximum, you can continue to deposit funds into the CD (in fact, you're expected to deposit at least $15 a month) until you hit whatever the max balance on the CD is. – MadDash Jul 6 '13 at 22:51
  • Without more information, I don't see a reason to prefer equal amounts vs. saving the money at overnight rates and combining some of it into the next CD purchase or renewal in your ladder. Remember, only you know when you might need the money and whether you like the rates being offered. – Paul Jul 7 '13 at 5:01
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    What you are describing doesn't really sound to me like CDs, but rather some kind of capped possibly high yield savings account. They can certainly both have their place but they are not the same thing. – a CVn Jul 7 '13 at 7:55
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All other things equal, you should add additional deposits into the CD with the highest APY. Generally speaking, this will be the CD with the longest term.

For people with CDs that don't allow additional contributions, you would save your deposits until your next CD expires, then combine the returns from the CD with your saved deposits and purchase a new CD with the longest timeframe you're able to tolerate.

Using your example, and assuming you want to contribute an additional $500 annually:

Initially:
CD-A (1y)   CD-B (2y)  CD-C (3y)  CD-D (4y)  CD-E (5y)
    $2000       $2000      $2000      $2000      $2000
After one year:
CD-B (2y)   CD-C (3y)  CD-D (4y)  CD-E (5y)  CD-F (5y)
    $2000       $2000      $2000      $2000      $2500
After two years:
CD-C (3y)   CD-D (4y)  CD-E (5y)  CD-F (5y)  CD-G (5y)
    $2000       $2000      $2000      $2500      $2500
...
After five years:
CD-F (5y)   CD-G (5y)  CD-H (5y)  CD-I (5y)  CD-J (5y)
    $2500       $2500      $2500      $2500      $2500
After six years:
CD-G (5y)   CD-H (5y)  CD-I (5y)  CD-J (5y)  CD-K (5y)
    $2500       $2500      $2500      $2500      $3000
...

Obviously the CDs are also earning interest over this time, but the point is the amount you've contributed to the ladder grows over time.

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