For many investors, cash rules. Despite the potential capital appreciation gains to be had in the stock market and the potentially higher interest rate returns in the bond market, give them a certificate of deposit (CD), a fixed deposit (FD) or a repurchase agreement (repo).

These money market instruments are offered by financial institutions at different interest rates, (depending on the amount deposited), and for different time periods (maturities). The depositor locks his or her money in for a specified period of maturity, and then benefits from interest earned. And what generally happens is that these investors tend to lump their money into one instrument. So if they have $10,000 or $1 million they put it down for say, 60 days. In essence, they 'fix it and forget it.'

However, there is an alternative way to approach money market investing and it is generally known as CD laddering.

The concept is simple. Take your investment dollars, divide them in equal parts and stagger the maturity dates. Then as each rung on the ladder matures, you reinvest the money in the higher rung of your ladder (longer period).

So for example, if you have $100,000 you could divide it have four different $25,000 certificates of deposit (or repos) that mature in 30 days, 60 days, 90 days and 120 days.

But why go through so much trouble? Why not just put everything down for one set period and do not worry yourself?

Well, according to Bankrate.com, CD laddering benefits you in this manner. "This system allows you to achieve a more consistent return on your savings. If interest rates move up, you'll be able to earn the higher rate on part of your money. And, if rates decline, only a portion of your money will be affected."

And that's the beauty of CD laddering - flexibility to take advantage of the movement of interest rates.

Now, in an environment where interest rates remain steady, CD laddering allows you to take advantage of the range of rates offered. Generally, interest rates are somewhat different based on how long you put your money down.

CONSIDER THIS PRACTICAL EXAMPLE:

An investor has $500,000 to invest. To get the best interest he or she locks in the funds for 180 days at 13.55 per cent, which is offered at one of the merchant banks in New Kingston. At the end of the 180 days (six months), that investor would earn approximately $33,400 before taxes.

Now say that same investor is not sure where interest rates are heading and he wants to stay in the short end of things. The same $500,000 locked for 30 days will get 12.95 per cent from the same New Kingston merchant bank. So at the end of 30 days, the investor earns $5,300 before taxes.

With CD laddering, the investor can take the $500,000, break it in five parts and always have some short-term money available.

As each amount matures, you simply roll it over if the funds are not needed.

If interest rates remain the same, by the end of 6 months, you would have earned nearly $32,000 before taxes. This is nearly the same as if you had locked away the entire lump sum. Of course, if interest rates go down, the longer maturities still earn at higher rates. On the flip side, if interest rates go up, the shorter maturities will benefit from higher rates.

Now, you don't have to take our word for it. The good folks at Bankrate.com provide a comprehensive CD ladder calculator for you to work out different financial scenarios.

Enjoy and profit.

UNDERSTANDING FINANCIAL concepts is important to make intelligent decisions. However, there are times in our lives when we want action. We think that personal finance is about getting from point A to point B, regardless of the amount of money you have or what your goal is. That is what this series is about and so we asked members of the financial community what you should to do now.

However, we gave them a few constraints.

Preserve risk when taking a loan

Consider a unit trust for retirement planning

Invest in yourself