What is the best way to invest in certificates of deposit over the long term?

Q: I would like to get a long-term CD for my grandsons, but have no idea how to start. Can you please help?
— L.G., Perris, Calif.

A: To avoid locking up all of the money you have to invest at a low rate, consider "laddering" the CDs. This entails staggering the maturity dates of several CDs so you always have at least a portion of your funds near at hand.

So if you want invest $5,000 for one grandchild, you might put $1,000 in a one-year CD, $1,000 in a two-year CD and so on, with your final $1,000 in a five-year CD.

When the one-year CD matures, you reinvest it in a five-year CD. By that time, the other CDs are each a year closer to maturity. That means the longest you have to wait at any time for a portion of your money to become available is one year.

This strategy lets you take advantage of the higher interest rates typically offered for longer-term CDs. At the same time, you're not locking up all your money at once.

Putting all the money into a longer-term CD could backfire if you need to get the money out before the maturity date. With CDs that last two to 18 months, for instance, penalties of three months' interest are common.

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