A certificate of deposit (CD) pays a fixed rate for a fixed time. You usually pay a penalty if you take the money out early. A ladder spreads money across several CDs so some is always coming free.
How a ladder works
- Split your money into equal parts, for example four
- Put them in CDs ending at different times, for example 3, 6, 9 and 12 months
- When each CD ends, use the money or roll it into a new 12-month CD
Good to know
- Check the early withdrawal penalty before you open a CD
- No-penalty CDs exist, usually at a slightly lower rate
- CDs at insured banks and credit unions are covered by deposit insurance
- Watch for automatic renewal at the end of the term
General educational information, not financial advice. Rates and fees change; check with your bank or credit union. Nickel Savings isn't paid by any bank or financial company.