CD ladder.
In plain English
A CD ladder is a way to use certificates of deposit (CDs, which are time-locked savings accounts) without tying up all your cash at once. You divide your money into equal pieces and buy CDs with different end dates, for example one-year, two-year, and three-year terms. As each shorter CD matures, you either take the cash or roll it into a new longer CD at the top of the ladder. This gives you regular access to part of your money while still earning the higher rates that longer CDs usually pay.
01Why it matters
A CD ladder lets you chase the better rates on longer CDs without locking up every dollar, so you are not stuck paying an early-withdrawal penalty the moment you need cash.
02The math, step by step
You have 12,000 dollars. Instead of one big CD, you put 4,000 dollars each into a one-year, two-year, and three-year CD. When the one-year CD matures, you roll it into a new three-year CD. After the ramp-up, one CD matures every year, giving you yearly access. CD rates vary by institution and change over time, so compare current rates before building it.
03What this is NOT
A CD ladder is not the same as putting everything in one long CD. The ladder keeps part of your money maturing on a schedule, so you avoid locking up all of it and avoid penalties for early access.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
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