What Is a CD Ladder?

Milana Budisavljevic, Preferred Banking Office Manager, First Republic Bank
January 14, 2022


  • A CD ladder is a deposit strategy in which savers buy into multiple CDs that mature at different intervals.
  • With a CD ladder, depositors put money into CDs of varying maturities, which means they’ll be able to access their savings at different times as well as take advantage of multiple interest rates.
  • People who aren’t sure they can wait to access funds locked up in a CD may want to consider CD ladders, which allow them to cash out or renew a portion of money sooner from another "rung" of the ladder, a CD with a shorter maturity date.

Certificates of deposit (CDs) can be a sound way to save money and earn interest on money saved. Depending on your financial goals, you can either place the funds in one CD at a time, or you can build what’s called a “CD ladder,” which is a savings strategy that may provide increased returns in long- or short-term periods. 

But you may be asking: What exactly is a CD ladder, and how does it work? Understanding how a CD or a CD ladder can help you save money will help you decide if this savings strategy is a good match for your financial goals.

CD ladder definition

A CD ladder is a savings strategy in which you distribute a sum of money across multiple CDs with different maturity dates over a years-long period. This savings strategy can help you grow your wealth and meet your financial goals while taking advantage of multiple CD ladder rates.

What’s a Mini CD Ladder?

A mini-CD ladder is the same concept as a traditional CD ladder but over a shorter time period. Instead of CDs maturing over several years, they’re condensed into several-month increments. In a year, for instance, you could build a mini-CD ladder with three-month, six-month, nine-month and one-year CDs.

CD ladders work by compounding interest from multiple CDs together in an effort to maximize savings for those who prefer fixed rates over variable rate deposits. CD ladders can maximize access to liquidity to address sudden financial needs avoiding paying penalty for early withdrawals.

How CD ladders work

CD ladders work in rungs: You deposit in multiple CDs at once, staggering their maturity dates so funds are accessible at chosen intervals. Compared with other financial products such as interest savings accounts, CDs generally have some of the highest interest rates, in exchange for restricted customer access to funds. The longer the CD term is, the higher the interest rate usually is.

With any CD, if you break the agreement to hold the funds until they mature, you’re likely to face early withdrawal penalties. This is why a CD ladder strategy includes depositing at staggered intervals of CD maturity, so all of your money isn't tied up at the same time.

In lieu of placing a lump sum into one CD from which you can’t withdraw any funds for years, a CD ladder strategy works by dividing up the lump sum into multiple short-term CDs or long-term CDs over staggered time intervals. CD ladders may be safe places for savings, as interest rates are locked in for a period of time while you look to maximize your returns.

Benefits of CD ladders

A CD ladder may be right for you depending on your financial goals. CD ladders have several benefits:

  • Increased accessibility:  Each ladder includes "rungs" with both shorter and longer maturity dates so you can access your money faster than if it were in one long-term CD as a lump sum.

  • Interest rate advantages: You’ll generally be able to seek better interest rates with a ladder composed of multiple long-term CDs, without locking all of your funds into one CD. You can also look to capitalize on higher interest rates if you choose to renew once a CD matures.

  • Flexibility: You’re able to choose how to split your deposits, as opposed to when you have a lump sum tied up in a single CD.

  • Avoiding withdrawal penalties: Multiple CDs mean you’ll have access to funds sooner, decreasing the likelihood you would need to remove immature funds early and incur an early withdrawal penalty.

Limitations of CD ladders

CD ladders are not for everyone, since there are some potential limitations:

  • Lack of liquidity: Although CD ladders provide more flexibility than a single CD, you still have a fixed period of time during which you don’t have access to funds until the maturity date.

  • Inflation rates: The highest-yielding CDs don't always match inflation. So, it’s possible rising inflation could outpace your CD rate of return.

  • Fluctuating interest rates: Due to economic fluctuations, you may potentially get a lower interest rate at the time of CD renewal.

  • No guarantee for maximization: While CD ladders often provide yields, they do not necessarily mean you’ll maximize the potential returns on your money.

If you think a CD ladder is the right option for your financial goals, learning how to build this savings strategy is important.

How to build a CD ladder

Walking through an example of how to build a CD ladder can clearly demonstrate how to execute this strategy.

In this CD ladder example, let’s say you have a total of $10,000 ready to be deposited and would like to do so over a five-year period. (Note that this is just one example; the amount and time period of the CD will vary depending on your savings goals, how many CDs you’d like to open, and the ideal maturity date for each.)

Step 1: Open separate CDs

In this CD ladder example, a $10,000 deposit might break out like this:

●  $2,000 in a one-year CD

●  $2,000 in a two-year CD

●  $2,000 into a three-year CD

●  $2,000 into a four-year CD

●  $2,000 into a five-year CD

As a depositor, you have the flexibility to put more funds into one CD as opposed to another based on personal preferences.

Here, with this laid-out time period of five years, you’re staggering — hence “laddering” — the maturity dates, so you will have access to each $2,000 deposit annually after the CDs are opened. If you go with a CD ladder strategy, you should be documenting the timeline to decide what to do with the funds after they’ve matured (such as renewing the CDs or cashing out).

Step 2: Reinvest at the maturity date or cash out

Once the CDs mature, you’ll have the opportunity to renew the funds in each one into a longer-term CD or move them to a personal account to spend. Renewing some or all of the CDs for a more-distant maturity date can compound interest on what has already been deposited and accrued, placing more money back in your pocket once the CD matures.

Renewing the money in the example above could look like:

●  Renew $2,000 + one year of interest into a new five-year CD

●  Renew $2,000 + two years of interest into a new five-year CD

●  Renew $2,000 + three years of interest into a new five-year CD

●  Renew $2,000 + four years of interest into a new five-year CD

●  Renew $2,000 + five years of interest into a new five-year CD

Among the benefits of renewing with this rolling CD ladder timeline is the ability to get the most money back with longer-term CD laddering strategies. The flexibility of the CD ladder strategy makes it appropriate for various personal financial goals. Try these additional resources to help you through the process of CD comparison and building a CD ladder.

Making CD ladders work for you

If you want to make a deposit in a CD ladder that allows you to save money and compound interest,  many financial institutions can help you to explore options. Again, every CD ladder — including maturity dates and rates of return — varies depending on how much individuals financial circumstance and if they need funds to be readily accessible.

Your financial institution can help with the process of building a CD ladder. If you’d like to further explore what returns you may get with certain CDs after they mature, a CD Calculator can help prepare you for a productive conversation with your bank.

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