The deal: CD laddering spreads your money across a range of bank certificates of deposit with different terms and fixed interest rates.
The risk: Locking yourself into low rates.
Building a CD ladder in a struggling market can leave some of your money stuck in a long-term, low-rate certificate of deposit. Consider the average for a five-year CD today (1.71 percent) versus the same CD just two years ago (3.56 percent).
The reward: Diversification helps you take advantage of varied interest rates.
In a CD ladder, you invest some of your money at the highest rates available while keeping a portion of your funds in more readily accessible certificates of deposit for terms of three months to 12 months. This method keeps a portion of your funds invested in the market's highest interest rates at all times.
McBride offers simple advice to beginners for CD laddering in today's low-rate climate, instructing them to focus on CDs with shorter terms. When interest rates begin to climb again, McBride says savers should extend their ladders into longer terms to increase their annual percentage yield.
If you're uncertain about laddering, you can estimate your earnings with Bankrate's CD ladder calculator.