Most savings accounts pay next to nothing in interest, which makes it hard to grow your money without taking on more risk. If you’re looking for a way to earn better returns without jumping into the stock market, a certificate of deposit (CD) ladder might be the answer.
A CD ladder is a strategy that spreads your money across several CDs with different maturity dates. This setup lets you lock in higher interest rates on longer-term CDs while still keeping some of your cash accessible at regular intervals.
The best part? CD ladders combine safety with flexibility. Your deposits are FDIC insured, you can reinvest as rates rise, and you avoid being stuck in a single long-term CD with no way out.
Key Takeaways
- A CD ladder spreads your money across multiple certificates of deposit with different maturity dates, giving you regular access to cash while locking in higher rates on longer-term CDs.
- Building a CD ladder offers FDIC protection, steady interest, and the option to reinvest when rates improve. Popular approaches include classic ladders, staggered purchases, and adjusting based on rate trends.
- Before starting a CD ladder, make sure you have an emergency fund, weigh inflation risks, and compare CD rates against other options like high-yield savings accounts.
What Is a Certificate of Deposit (CD)?
A certificate of deposit is a savings account that locks your money for a set period in exchange for a fixed interest rate. Terms typically range from a few months to five years. Pulling money out early usually means paying a penalty, so CDs aren’t ideal for emergencies.
The tradeoff is higher returns than a standard savings account, especially on longer terms. Because CDs are FDIC insured, they’re considered one of the safest places to park savings you don’t need right away.
What Is a CD Ladder and How Does It Work?
A CD ladder is a savings strategy that spreads your money across several CDs with different maturity dates. Instead of tying up everything in one long-term CD, you set staggered end dates so part of your money becomes available regularly.
This approach keeps your cash more liquid while still letting you earn the best CD rates that come with longer-term CDs. As each CD matures, you can either withdraw the funds or reinvest in a new CD to keep the ladder going.
Pros & Cons of a CD Ladder
Like any savings strategy, a CD ladder has both advantages and disadvantages. Knowing both sides will help you decide if it fits your goals.
Pros
- FDIC protection: Your deposits are insured, making this a very low-risk way to grow savings.
- Steady access to cash: With staggered maturity dates, part of your money becomes available regularly.
- Higher potential returns: Longer-term CDs often pay more than savings accounts, and a ladder lets you capture those rates without locking up all your funds.
- Flexibility with rates: As CDs mature, you can reinvest at current interest rates—helpful when rates are rising.
Cons
- Limited liquidity: If you need money before a CD matures, you’ll face penalties unless you wait for the next maturity date.
- Inflation risk: If inflation outpaces your CD rate, your money could lose purchasing power.
- Opportunity cost: A CD ladder might earn less than alternatives like high-yield savings accounts, Treasury bills, or bonds, depending on the market.
Types of CD Ladder Strategies
There are several ways to structure a CD ladder depending on how much money you want to invest, how often you want access to your funds, and what you expect interest rates to do.
Classic CD Ladder
Split your money across CDs with different terms, usually one through five years. As each CD matures, reinvest it in a new long-term CD. Eventually, you’ll have one maturing every year while still earning higher long-term rates.
Example with $5,000:
- 1-year CD: $1,000
- 2-year CD: $1,000
- 3-year CD: $1,000
- 4-year CD: $1,000
- 5-year CD: $1,000
After the first year, roll that $1,000 into a new 5-year CD. Keep repeating, and you’ll always have money coming due annually.
Staggered Purchases
Instead of buying all your CDs at once, you spread out purchases over time—for example, opening a new 2-year CD every six months. This approach makes it easier to start with smaller amounts and gives you more frequent maturity dates.
Rate-Focused Ladder
Some savers adjust their CD ladder based on interest rate trends. If rates are rising, they might choose shorter terms so they can reinvest sooner at better rates. If rates are falling, they may lock in longer-term CDs to secure today’s higher yields.
CD Ladder vs. Other Savings Options
A CD ladder isn’t the only low-risk way to grow your money. High-yield savings accounts and Treasury bills are also popular choices. Here’s how they stack up:
| Feature | CD Ladder | High-Yield Savings Account | Treasury Bills |
|---|---|---|---|
| Liquidity | Limited—only accessible at maturity dates | Very high—withdraw anytime | Moderate—must wait until maturity unless sold |
| Interest Rates | Higher on long-term CDs; fixed until maturity | Variable—can rise or fall with market rates | Fixed rate at purchase |
| FDIC/Guarantee | FDIC insured up to $250,000 per bank | FDIC insured up to $250,000 per bank | Backed by the U.S. government |
| Best For | Balancing higher returns with predictable access | Easy access to funds with steady growth | Very safe short-term investing with government backing |
This quick snapshot helps highlight where a CD ladder makes sense and where other options might be a better fit.
Is a CD Ladder Right for You?
Before building a CD ladder, check your financial foundation. Do you have an emergency fund that covers at least three to six months of expenses? If not, focus on that first since CDs aren’t designed for quick withdrawals.
If your short-term needs are covered, a CD ladder can be a smart way to grow extra savings with predictable returns. You can stick with a classic ladder, adjust based on interest rate trends, or set up maturities that align with specific goals like tuition payments or a down payment timeline.
The flexibility makes CD ladders useful for savers who want steady growth without taking on market risk, but they work best when paired with other accounts that keep your everyday cash accessible.
Final Thoughts
A CD ladder offers a balance between safety and growth. It gives you predictable access to funds, steady returns, and protection through FDIC insurance. But it isn’t always the highest-earning option, especially when interest rates are low.
The smart move is to compare CD rates with high-yield savings accounts and Treasury bills before locking in. You don’t need to commit a large amount upfront—you can start small, see how it works, and expand as earlier CDs mature.
The goal is simple: create a savings plan that fits your timeline, protects your money, and earns more than leaving it in a basic savings account.
Frequently Asked Questions
How much money do I need to start a CD ladder?
You can begin with as little as a few hundred dollars per CD, but many banks have minimum deposits ranging from $500 to $1,000. Starting small is fine—you can always expand later.
Can I break a CD early if I need the money?
Yes, but you’ll usually pay an early withdrawal penalty. That’s why a CD ladder is designed to keep some money coming due regularly, so you can access funds without breaking a CD.
Is a CD ladder better than a bond ladder?
Both offer predictable returns, but CDs are FDIC insured, while bonds carry some market risk. Bonds may offer higher yields, but a CD ladder is the safer choice for conservative savers.
How long should my CD ladder be?
Most ladders run from one to five years. The right length depends on your goals: shorter ladders improve access to cash, while longer ladders lock in higher rates.
Can I build a CD ladder at an online bank?
Absolutely. Many online banks offer competitive CD rates with lower minimum deposits. Shopping around online often leads to better returns than sticking with a local branch.
