The longer a CD’s term, the higher the rate that the bank typically pays. The problem is that many people want to get their money sooner rather than later. But cashing in a CD early results in a penalty that eliminates the interest advantage of the longer term. There is a solution: a CD ladder, a series of certificates of deposit with different times to maturity. Savers not only receive higher interest than they would with a single short-term CD, but they also have greater penalty-free access to their money than they would with a single long-term CD.
Over time, you’ll have a collection of CDs with maximum maturity (and interest rates), coming due at a pace that gives you plenty of liquidity. And, there are several ways to set up a ladder, giving you maximum flexibility.