What Is a CD Ladder and How Does It Work?
- Drew Eddinger
- Jan 7
- 3 min read
If you like the higher, predictable rates of certificates of deposit (CDs) but don’t want to lock up all your money at once, a CD ladder may be one of the smartest savings strategies available.
A CD ladder is simple in concept, flexible in practice, and widely used by experienced savers, especially in uncertain or changing rate environments like we are seeing now.
This blog explains what a CD ladder is, how it works, and when it makes sense, so you can decide if it’s the right strategy for your savings today.
Quick Definition
A CD ladder is a savings strategy where you divide your money across multiple CDs with different maturity dates, instead of putting it all into one CD.
As each CD matures:
You gain access to a portion of your money
You can spend it or
Reinvest it at current interest rates
This creates a balance between earning higher CD rates and maintaining regular access to cash.
How a CD Ladder Works (Simple Example)
Let’s say you have $25,000 to save and want to build a 5-year CD ladder.
Instead of investing all $25,000 into one 5-year CD, you split it like this:
CD Term | Amount Invested |
1-Year CD | $5,000 |
2-Year CD | $5,000 |
3-Year CD | $5,000 |
4-Year CD | $5,000 |
5-Year CD | $5,000 |
What Happens Next?
After 1 year, the first CD matures
You can:
Use the cash if needed, or
Reinvest it into a new 5-year CD
Each year, another CD matures, giving you annual liquidity without penalties.
Over time, your ladder becomes a rolling system of 5-year long-term CDs earning competitive rates.
Why Savers Use CD Ladders
CD ladders are popular because they solve three common savings problems at once:
1. Liquidity Without Penalties
Instead of breaking a CD early and paying penalties, you can wait for the next rung of your ladder to mature.
2. Protection Against Rate Changes
If rates rise, maturing CDs can be reinvested at higher rates
If rates fall, older CDs keep their higher locked-in rates
3. Predictable Income & Planning
Knowing when each CD matures makes it easier to plan for:
Future expenses
Tuition payments
Home projects
Retirement income timing
CD Ladder vs. Single CD: What’s the Difference?
Strategy | Pros | Cons |
Single CD | Simple, fixed rate | No flexibility |
CD Ladder | Ongoing access + rate diversification | Slightly more setup |
Savings Account | Full liquidity | Variable rates |
A CD ladder is often the middle ground between locking everything up and staying fully liquid.
Common Types of CD Ladders
Short-Term Ladder
Terms: 3 months to 2 years
Best for cautious savers or uncertain timelines
Long-Term Ladder
Terms: 1 to 5+ years
Best for maximizing yield and rate stability
Income Ladder
CDs staggered to mature quarterly or annually
Often used for supplemental income planning
When a CD Ladder Makes the Most Sense
A CD ladder may be a good fit if:
You want higher yields than savings accounts
You don’t need all your money at once
You’re concerned about future rate changes
You prefer predictable, low-risk returns
It’s especially effective for:
Conservative investors
Near-retirees
Large cash balances waiting for future use
Common Mistakes to Avoid
❌ Overcomplicating the Ladder
You don’t need 10 CDs. Even a 3–5 rung ladder works well.
❌ Ignoring Minimum Deposit Requirements
Some banks offer higher rates but require larger deposits per CD.
❌ Forgetting to Reinvest
A ladder only works if maturing CDs are actively managed. Most banks allow for automatic renewals, just pay attention to the rates at the time of the renewal.
CD Ladders vs. High-Yield Savings Accounts
Many savers use both:
High-yield savings for emergency funds
CD ladders for planned or semi-committed money
This approach keeps your money working harder, without sacrificing peace of mind.
Final Thoughts
A CD ladder is not about predicting interest rates, it’s about managing uncertainty.
By spreading your money across multiple maturities, you gain:
Flexibility
Consistent access
Competitive long-term returns
For savers who value stability but still want options, a CD ladder can be a powerful, and surprisingly simple, strategy.
