Certificates of Deposit (CDs or FDs) are incredible tools for locking in high, guaranteed interest rates. But they have one massive flaw: your money is trapped. If you break the CD early to pay for a medical emergency, you get hit with massive penalty fees.

The solution used by wealthy, conservative investors is a strategy called a "CD Ladder." Before setting one up, you can calculate your exact guaranteed payouts using our FD / CD Calculator.

How a CD Ladder Works

Instead of putting your entire $50,000 into a single 5-year CD, you split the money into five different $10,000 CDs, each with a different maturity date:

1. $10,000 in a 1-Year CD
2. $10,000 in a 2-Year CD
3. $10,000 in a 3-Year CD
4. $10,000 in a 4-Year CD
5. $10,000 in a 5-Year CD

The Benefit: Constant Cash Flow

Fast forward one year. Your 1-Year CD matures. You now have access to $10,000 plus interest! If you need the money, you take it.

If you don't need the money, you take that $10,000 and reinvest it into a new 5-Year CD (which goes at the "top" of the ladder).

Because of this structure, you have a CD maturing every single year, giving you constant liquidity, while the bulk of your money is earning the premium long-term rates of a 5-year CD.

If you want to compare these guaranteed returns against leaving the cash liquid in a standard high-yield account, run the numbers on our Savings Calculator and Compound Interest Calculator.

Final Takeaway

A CD ladder protects you from interest rate volatility while ensuring you are never more than 12 months away from accessing a portion of your cash penalty-free.