If you like the higher rates that a certificate of deposit (CD) typically offers compared to other savings accounts, but don't love the idea of putting your funds on ice for years at a time, take heart: You can still enjoy the perks of a fixed-rate CD without giving up too much of your freedom.
The key is to build what's commonly called a CD ladder—a short and medium-term savings strategy that also doubles as a useful workaround for savers who want faster access to their funds. Rather than lock your money into a single account, a more flexible strategy is to spread your funds across multiple CDs with staggered maturity periods, ranging from as little as three months to as much as five years.
That way, you'll still enjoy regular access to your funds without giving up the interest-earning potential of a longer-term CD. Depending on how it's structured, you may even earn more interest over time than if you stuck to just one account. A well-built CD ladder is also more versatile than a single-account strategy. When you opt for a mix of shorter-term CDs alongside longer-term ones, for example, you give yourself more wiggle room to adjust to changing rates.
Here's a closer look at how CD ladders work, alongside tips on how and when to use one.
What is a CD Ladder?
A CD ladder is the term typically used to describe a chain of strategically chosen CD accounts that belong to the same depositor. It is a savings strategy, rather than a single bank product.
Related Content: What is a CD Account?
Each rung of a CD ladder stands for a separate CD account, with different interest rates and maturity schedules. For example, if you divide your savings between three or four CDs, ranging from a CD that matures in three months to a CD that matures in 12 months, that would be considered building a CD ladder.
Sidenote: A CD is considered “mature" when you're allowed to freely access the money that you deposit in it. Before that date, you can technically withdraw money from your CD account, but you are usually charged a penalty.
How Do CD Ladders Work?
CD ladders work just like regular CDs, except that they're made up of multiple CD accounts rather than just one. Each CD included in the CD ladder has its own interest rate and timeline, as well as its own cash withdrawal policy.
For example, when you open a three-year CD, you agree to leave your money in the account for at least three years. Otherwise, your bank may charge an early withdrawal penalty.
But not all CDs charge a fee for early access. For example, Riverstones Vista Capital offers a no-penalty CD that lets you withdraw money early if and when you need it.
Here's a closer look at the key components that distinguish each of the CDs in your CD ladder:
Fixed Interest
Typically, the interest rates offered by CDs are fixed—meaning they don't change over time. Variable interest rates, by contrast, can rise and fall over the life of an account, depending on economic and market conditions.
For example, if an economic recession prompts the Federal Reserve to cut federal interest rates, then a bank may also cut the rates it pays savers.
With a CD's fixed interest rate, you don't have to worry about that. Your CD rate will stay the same, regardless of whether other interest rates have fallen, and your return is guaranteed.
The downside to that stability, though, is that you may also miss out on rising interest rates, so it can be helpful to keep some money in shorter-term CDs so that you can reinvest it into new accounts once interest rates increase. You could also opt for a Riverstones Vista Capital Bump-Up CD, which permits you to boost your interest rate once during the term if the rate offered for your Bump-Up CD rises and take advantage of a higher return.
Maturity Period
Each CD that you add to your ladder will come with a fixed term, along with an interest rate that roughly corresponds with it. The longer a CD requires you to wait to access your funds, the higher the interest rate it is likely to offer.
Banks value the stability of long-term deposits and so will often reward a longer commitment with higher rates. The trade-off is that you may have to forgo access to your funds for years at a time to get the best rates. However, a CD ladder can help you blunt that impact by giving you more frequent access to cash. As your CD accounts continue to mature, you can then choose to spend your cash or reinvest it into new CDs.
When comparing CD accounts, you'll typically have a variety of maturity periods to choose from, ranging from as little as three months to as much as 60 months. Not all CD terms will vary in the interest rates they offer. But in general, you can expect to see rates go up as terms lengthen.
Early Withdrawal Penalties
With most CDs, you can expect to be charged a penalty if you withdraw the money you have invested earlier than agreed. The amount you're charged will likely vary, depending on the account and the length of your CD term. But expect the fee to be based on a percentage of your earnings. Generally, you can withdraw interest without a penalty.
One of the primary benefits of building a CD ladder is that it helps you access some of your capital without paying a penalty. Say, for example, you've opened three CDs spaced six months apart: One CD matures in six months, another matures in 12 months and a third CD matures in 18 months. Once a CD matures, you can then choose to withdraw your funds or reinvest them into a new 18-month CD. This cycle of maturing CDs gives you ongoing access to capital every six months, while growing your wealth.
Alternatively, you can space out your schedule further in order to capitalize on the higher rates that longer-term CDs offer. Or you can spread your funds across an even larger number of CDs in order to give yourself more regular cash access while still maximizing your earnings. The choice is yours.
CD Ladder Example
While your specific CD ladder will depend on your overall savings strategy, here's an example of a five-year CD ladder that will grow with time if you reinvest your savings.
Imagine you have $15,000 that you want to store in an FDIC-insured deposit account. You decide to divide your money evenly between five separate accounts, ranging from a 12-month CD with a 2.10% annual percentage yield (or APY, which is how much you may earn in interest over a year) to a 5-year CD with a 2.30% APY.
Initially, your savings might look like this:
| CD Term |
APY |
Initial Deposit |
Balance at Maturity |
| 1 Year |
2.10% |
$3,000 |
$3,063.66 |
| 2 Years |
2.20% |
$3,000 |
$3,134.94 |
| 3 Years |
2.25% |
$3,000 |
$3,209.48 |
| 4 Years |
2.25% |
$3,000 |
$3,282.51 |
| 5 Years |
2.30% |
$3,000 |
$3,365.61 |
That's not bad! But if you decide to keep your ladder going by reinvesting your savings each time once each CDs matures, then you could reap even more from your accounts.
For example, if you continued to reinvest $3,000 into each new CD you opened, using the same timeline as above, then your ladder's earnings would eventually look like this:
| CD Term |
APY |
Rolled-Over Deposit |
5-Year Rollover Balance |
| 1 Year |
2.10% |
$3,000 |
$3,437.41 |
| 2 Years |
2.20% |
$3,000 |
$3,517.06 |
| 3 Years |
2.25% |
$3,000 |
$3,600.08 |
| 4 Years |
2.25% |
$3,000 |
$3,683.10 |
| 5 Years |
2.30% |
$3,000 |
$3,776.21 |
That's more than $3,000 in earned interest, which is pretty good for an FDIC-insured deposit account!
How to Build a CD Ladder
The point of a ladder is for it to go on indefinitely. Although CD ladders typically include a range of short, medium and long-term CDs, there are no hard-and-fast rules for building one. For example:
A CD ladder's shelf life can be long, potentially extending for as much as five years or more if you continue adding new accounts to it. Or it can be short, lasting for just a few years or less. A mini CD ladder, for example, is made up of just short-term CD accounts.
There can be lots of rungs included on a CD ladder. Or your ladder may consist of just a handful of rungs, depending on how simple or complex you make it.
You can divide your savings equally between CDs. Or you can vary how much money you add to each account.
For instance, let's say you want to create a CD ladder with $20,000. You could put $4,000 into CD terms of 1, 2, 3, 4 and 5 years to create a “rolling maturity cycle." Or you could put $5,000 into CD terms of 1, 2, 3, and 4 years. The choice is yours!
To build a solid CD ladder, anticipate your needs, then build around them. For example:
1. Determine your "why" for building a CD ladder.
Then determine your "what." For example, what do you want to invest in your ladder? Similarly, what kind of ladder strategy will you pursue? A short-term ladder? A long one?
2. Write down exactly how much money you'd like to set aside.
Then think in more concrete detail about how exactly you plan to use it. It's also a good time to consider whether a deposit account is even the right place to park these funds.
3. Determine the length of your CD ladder and your ideal timeline.
Are you looking to build a mini CD ladder that gives you maximum flexibility? Or would you rather give up some flexibility for higher rates?
4. Consider how much money you want to put into each account.
You don't have to put the same amount of money into each CD. You can build the rungs of your ladder as you see fit.
5. Check the fine print.
Does your CD automatically renew at maturity? Or do you need to do this manually? Are there minimum deposit requirements you need to meet? What are the penalties for withdrawing money early? Do your homework.
6. Decide what you want to do once a CD has matured.
Do you want to use some or all of the money? Or do you want to reinvest it?
What to Consider Before Building a CD Ladder
As you can see, a CD ladder can be an effective tool for conservatively boosting your wealth while still maintaining access to some funds. But before you start opening a whole bunch of new CDs, you'll first want to consider your short, medium and long-term saving strategies, as well as your current need for ongoing cash.
Ask yourself the following questions before building a new ladder:
- • How much of my savings do I want to invest?
- • How much can I afford to transfer to CDs?
- • How soon will I need this money?
- • What, if anything, do I plan to buy with it?
- • Can I get away with withdrawing just a fraction of my savings every few months or just once or twice a year?
- • Why am I putting this money into a deposit account, rather than in exchange-traded funds, mutual funds or other longer-term investments?
- • How important is it to me to maximize my earnings?
- • How is the economy doing? Are interest rates likely to increase in the coming months? Or will they likely decrease?(Note: This is a tough question for anyone—even financial experts—to answer, so don't worry if you have no idea what to expect!)
The Bottom Line: A CD Ladder Can Help Grow Your Wealth
Regardless of your savings goals, the secret to building an effective CD ladder is to settle on a strategy that works for you—and be willing to revise or refine that strategy with time. After all, the biggest benefit of CD laddering is the freedom and versatility you get from opening multiple accounts.
But the flip side to that freedom is that a CD ladder can easily become overwhelming if you make it too complicated. For example, opening too many accounts could make it hard to keep track of them. You may also find it cumbersome to roll over money from one account to another if your bank doesn't automatically do it for you. You may even find that you don't need nearly as frequent access to your capital as you once thought. Luckily, a CD ladder's flexibility makes it relatively easy to revise your strategy over time.
Whatever you do, just make sure you don't put all your savings into one ladder—particularly since CDs are unlikely to net you nearly as strong a return as riskier, more volatile investments (like the stock market). Instead, a better long-term savings strategy is to diversify your investments: Spread your funds across various accounts whenever possible, including CDs, mutual funds, bonds and other savings options.
Kelly Dilworth is a business and personal finance reporter, specializing in the intersection between money and life. She has covered consumer banking and lending for more than a decade and particularly enjoys writing about consumer behavior and psychology, new consumer research and how everyday banking products impact people's lives.