How do I: Ladder CDs?

What you need to know

When investing your money, it can be hard to find safety, great CD rates and liquidity in the same place. But that's exactly what laddering CDs offers.

Instead of having your money in one certificate of deposit, you divide your principal over multiple CDs with different maturities, the longest usually being five years. Each year equals one rung on the ladder.

Every year a different CD matures, and you reinvest that matured CD at the five-year term. However, unlike a stocks or long-term lump-sum investments, as your laddered CDs mature, you have access to the funds without penalty if you choose not to reinvest. This gives you some liquidity while still earning returns.

Laddering allows you to avoid timing the market, coupling lower CD rates and higher CD rates, usually averaging to a higher return than you would get with just one lump sum.