What Is a CD Ladder?
In plain English
A CD ladder is an investment strategy where you divide your savings equally among multiple certificates of deposit with different maturity dates. As each CD matures, you can access the funds or reinvest at current rates. This approach balances the higher yields of longer-term CDs with regular access to your money.
How Do You Build a CD Ladder?
A basic ladder divides funds across CDs maturing at regular intervals. For example, with $10,000 you might buy five CDs: a 1-year, 2-year, 3-year, 4-year, and 5-year. Each year, one CD matures. You reinvest the proceeds into a new 5-year CD (typically the highest rate), maintaining five rungs with one maturing annually. This gives you yearly liquidity while earning longer-term rates.
What Are the Benefits of a CD Ladder?
CD ladders provide three key advantages: higher average yields than keeping everything in short-term CDs or savings, regular liquidity since one rung matures periodically, and interest rate risk protection because you reinvest at intervals rather than locking everything in at one rate. If rates rise, maturing CDs capture higher yields. If rates fall, your longer-term CDs preserve older, higher rates.
When Does a CD Ladder Make Sense?
CD ladders work best for funds you want to keep safe and accessible on a schedule — like a home down payment timeline or retirement income planning. They are less useful when [high-yield savings accounts](/glossary/high-yield-savings-account) or T-bills offer comparable rates with more flexibility. Compare current CD rates to savings rates before committing to a ladder strategy.
Frequently asked questions
What happens if I need the money before a CD matures?
You will typically pay an early withdrawal penalty, usually equal to several months of interest. Some banks offer no-penalty CDs with slightly lower rates. The ladder structure minimizes this risk since at least one CD is always close to maturing.
How many rungs should a CD ladder have?
Most ladders have 3 to 5 rungs, but you can customize based on your needs. More rungs mean more frequent liquidity. Fewer rungs can mean higher individual yields. The right number depends on how often you might need access to the funds.
Keep exploring
Related terms
Certificate of Deposit
A certificate of deposit (CD) is a savings product that locks in a fixed interest rate for a set period in exchange for leaving your money untouched.
High-Yield Savings Account
A high-yield savings account offers significantly higher interest rates than traditional savings accounts, typically available through online banks.
APY
APY (Annual Percentage Yield) measures the total interest you earn on a deposit account over one year, including the effect of compounding.
Savings Account
A savings account is a deposit account that earns interest on your balance while keeping your money accessible for withdrawals.