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What Is a CD Ladder?

This savings strategy gives you more flexibility while offering highly competitive interest rates.

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A certificate of deposit, or CD, usually requires you to lock away money for a set period of time with no flexibility if you need the funds -- unless you pay an early withdrawal penalty. That’s where CD ladders can come in handy.

Under this savings strategy, you can open multiple CDs simultaneously with different maturity dates. When each CD term ends, you’ll have money available without paying a fee. This provides an ongoing savings strategy that can help you leverage the highest CD interest rates, which are usually available for longer-term CDs. 

Here’s how a CD ladder works and why it’s one way to maintain flexibility, whether you’re worried about needing the money or that higher interest rates are on the horizon. 

What is a CD ladder?

If you don’t like the idea of locking your money into a long-term CD, a CD ladder provides somewhat of an in-between option. With a CD ladder, you can benefit from the higher rates long-term CDs generally offer while also enjoying more frequent access to your funds. Here’s how it works: 

A CD ladder is a savings strategy made up of different CDs at varying term lengths. With a CD ladder, you divide your cash across multiple CDs with different maturity dates. When the first CD matures, you can reinvest it (and any earned interest) into a new CD -- it doesn’t have to be the same term. Or you can put the money toward a goal or a different savings vehicle. And as each CD matures, you repeat that process. 

How does a CD ladder work?

You can build a CD ladder by investing in several CDs with staggered maturities. For example, you might invest in a CD with a one-year term, another with a two-year term, a third with a five-year term and so on. The amount you invest in each CD can vary, depending on how much you expect to need at future intervals. However, a traditional CD ladder typically has five “rungs.” 

With this strategy, you’ll want to divide your investment equally into five CDs with different maturity dates. If you have $5,000 to invest, you might break it up like this: 

  • $1,000 in a one-year CD. 
  • $1,000 in a two-year CD.
  • $1,000 in a three-year CD.
  • $1,000 in a four-year CD.
  • $1,000 in a five-year CD.

As a CD matures, you’ll take the principal deposit (and any interest earned) and open a new five-year CD. The following year, you’ll approach the two-year CD the same way, and so on. It should look something like this:

  • $1,000 + one year of interest in a five-year CD.
  • $1,000 + two years of interest in a five-year CD.
  • $1,000 + three years of interest in a five-year CD.
  • $1,000 + four years of interest in a five-year CD.
  • $1,000 + five years of interest in a five-year CD.

In theory, you’ll reinvest each deposit into a new CD at least once. But CD ladders allow enough flexibility that if you decide rates are too low, or your investing goals change, you can break up your ladder. You may also choose to build a CD ladder with shorter terms. 

When your CD term is close to ending, it’s time to think about what you’ll do with the principal, plus interest earned. You may also choose to add more money or choose a different bank with a better rate. Most banks offer a 10-day grace period, but keep in mind that some CDs may roll over automatically, so be sure to read the fine print.

Benefits of a CD ladder

  • Higher rates on longer-term CDs: Interest rates on CDs are higher than those of traditional savings accounts, so you may earn more money by investing in CDs. 
  • Increased flexibility: With a CD ladder, you can easily redeem short-term CDs and reinvest in longer-term ones if interest rates have gone up.
  • You don’t have to miss out if rates go up: You can choose where to reinvest your funds when a CD matures, rather than having to commit to a new CD with the same bank. This makes it easier to take advantage of new rates as they fluctuate over time.
  • Predictability: There’s a guaranteed rate of return with CDs because your money is locked into a fixed term with a fixed interest rate. 

Drawbacks of a CD ladder

  • It requires work: CD ladders aren’t a “set it and forget it” savings strategy. You’ll need to track when your CD terms end and compare rates to maximize your return. Otherwise, you risk your CD being renewed when you may have other plans for the money. 
  • You can’t guarantee your CD will ever outpace inflation: Putting your money in a staggered CD ladder can benefit you in a rising rate environment, but CDs may not keep up with inflation and the value of a dollar. And if rates fall, you may end your CD ladder when the terms end. 
  • A matured CD might have to be reinvested into a lower rate: If rates go down, you might end up investing in a CD with a lesser rate of return, if you don’t end the ladder or choose another savings option.
  • Other savings vehicles might offer more growth potential: There are more-aggressive investment strategies available on the market. You may miss out on better returns offered by other investment vehicles with greater growth potential, such as stocks and bonds.

Alternatives to a CD ladder

CDs ladders allow for more flexibility, but that doesn’t mean they’ll always be the right savings mechanism for your cash. A high-yield savings account, for example, offers easy access to your funds, and some of the best competitive savings rates are hovering above 4%. You’ll have access to your money when you need it and you can make regular contributions -- all without paying a penalty.  

If a CD appeals to you -- but not the limited flexibility -- a no-penalty CD might offer a solution. You earn a fixed rate with a no-penalty CD but won’t face an early withdrawal penalty if you pull out funds before the CD term ends. But with every trade-off, there’s a compromise. No-penalty CDs generally offer lower annual percentage yields, or APYs, than traditional CDs. 

If you plan to make regular purchases, or you need checking account features, you may consider a money market account. You’ll still have a decent APY on your savings, but you may be required to meet a minimum balance or deposit threshold for your account to stay in good standing. On the bright side, most money market accounts come with check writing, a debit card and ATM access. 

If you have a large deposit, brokered CDs can be purchased from a brokerage firm rather than a bank and typically offer longer terms and higher yields than traditional CDs. Brokered CDs are bought and sold on the secondary market (similarly to stocks and bonds). That means if you want to withdraw your money early in your brokered CD, you can sell it on the secondary market. By doing so, you won’t incur early withdrawal penalties as you would with a standard CD. However, be wary of any fees if you decide to sell your brokered CD. 

Are CD ladders a good investment?

CD ladders can offer access to your money sooner than sticking to one long-term CD. Plus, you can earn higher interest rates than a single CD would. Even though you won’t earn as much with a CD as you might with more aggressive, risky investments, a CD is a safe, FDIC-insured option.

However, if you’re looking to make more money in the long term, you could benefit more from other investment strategies that can yield a bigger return. Before you commit to a CD ladder, make sure you’re carefully considering your short-term and long-term investment goals and planning your CD ladder accordingly. 

Correction: An earlier version of this article was assisted by an AI engine and it mischaracterized some aspects of CDs. Those points were all corrected. This version has been substantially updated by a staff writer.

Liliana Hall is a writer for CNET Money covering banking, credit cards and mortgages. Previously, she wrote about personal credit for Bankrate and She is passionate about providing accessible content to enhance financial literacy. She graduated from the University of Texas at Austin with a bachelor's degree in journalism, and has worked in the newsrooms of KUT and the Austin Chronicle. When not working, she is probably paddle boarding, hopping on a flight or reading for her book club.
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