One popular strategy for managing your high yield savings rates and give you access to cash is known as CD Laddering.

If you have liquid assets (like cash) that you don’t want to put into the stock market or a low yield checking account, then a CD ladder may be a good option. The benefits of a CD ladder are a higher average return, lower risk, and you can still access at least some of your cash.

A CD Ladder is an investment strategy used by people who invest in Certificates of Deposit. Investors who use this strategy stagger (or “ladder”) their investments so that at least one CD matures each month, quarter or year. This gives the investor the liquidity needed to take advantage of rising interest rates, while still being able to invest in the longest term CDs with the highest interest rates possible. This is one way to maximize the benefits of investing in CDs while minimizing the drawbacks of locking up your cash for a long period of time.

CD laddering protects you from interest rate fluctuations, with access to some of your money in a short time frame.

You build the ladder by buying several CDs at one time, each with different maturity dates (for example, one year, two year, three year, four year, and five year CDs). Every year one of your CDs will mature and you can then roll it over into a new CD with the best yield available at that time.

Here is how to build a 5 year CD ladder. In this example, you have $10,000 available to invest to begin your CD ladder. After checking the CD Rate Tables on RateNerd.com, you purchase five CDs: CD #1 for $2,000 for a one-year term, CD #2 for $2,000 for a two-year term, CD #3 for $2,000 for a three-year term, CD #4 for $2,000 for a four-year term; and CD #5 for $2,000 for a five-year term.

Each CD is like a rung on a ladder. When the one-year CD matures, you roll it into a new CD for five years (or whatever term you decide to use for your ladder). When the two-year CD matures, roll it over into a new CD for five years. When the three-year CD matures, roll it over into a new CD for five years, etc. You can choose a shorter or longer term when you begin the ladder, but the key is to use the same term for each one once you start rolling them over at maturity. At the end of five years you’ll have five CDs with one maturing every year after that, so you’ll never have all of your money tied up long-term or at lower than market interest rates.

A certificate of deposit is basically a promise by a depositor to keep their money deposited for an extended period of time. In exchange for this promise the financial institution pays the depositor a higher interest rate. The most common maturity rates for CDs include three months, six months, one year and five years. These are perfect for laddering CD’s. You can learn more about CD Rates in the “Bank Rates” section of RateNerd.com