Creating a CD Ladder

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I have a modest amount saved that I’d like to put to work by buying certificates of deposit, but I’m leery of tying up too much of my money to get the highest yield. Any suggestions? Kyron Johnson, New York City
Assuming you have enough savings readily accessible in case of an emergency, certificates of deposit (CDs) are a smart way to maximize the return on your savings. By purchasing a CD from a bank, you are essentially providing a loan in exchange for a fixed-rate of return. Generally, the longer you’re willing to lock up your money, the higher the rate of return. There are penalties for withdrawing your money before a CD’s maturity date, which is why you’ll want to maintain your emergency fund separately.
One option to consider is building a CD “ladder.” This means that you spread your savings across CDs with various maturities. For example, if you have $5,000 to invest, you might purchase five $1,000 CDs with maturities ranging from one- to five-years. After one year, as the first CD matures, you would then reinvest those earnings into a five-year CD. If you continue that reinvestment pattern, at the end of year four, you will have five, five-year CDs, one of which will mature each year.
Taking this approach will allow you to maintain some liquidity as well as decrease the likelihood that you’ll tie up too much of your savings in a low-rate CD for an unduly long period.
A useful resource to learn more about CDs and find the best rates is