The Standard Method of CD Investing
Normally, CDs with the longest maturity date offer the best [a rel="self" leech=http://www.ratelines.com/]interest rates[/leech]. For example, five year CDs usually have an Annual Percentage Yield that is at least 1 percentage point higher than a one or two year CD. Often, the discrepancy is even larger than just one percent.

How CD Laddering Works
So, of course the best way to invest in CDs is to take the CDs with the longest maturity date, right? Sometimes it’s not that simple. It’s difficult to put a large chunk of money into an account and lock it away for five years. There’s a way you can take advantage of the greater interest rates on longer CDs without keeping your money tied up; this is what CD laddering is all about.

A Good Example
When you start a CD ladder, you buy multiple CDs. So, instead of investing $5000 into a five year CD, you would invest $1000 into a one year CD, $1000 into a two year CD, and so on, until you have invested the full five thousand dollars.

Then, once you receive your bundle of cash for the one year CD, you can reinvest it into a longer term CD. This way you can take advantage of the best interest rates and still receive returns on your money.