What is a CD ladder? Your guide on how to build one

Summary:

• A CD ladder is a savings strategy that spreads money across multiple certificates of deposit (CDs) with different maturity dates, i.e. end dates of the investment. This provides regular access to funds while still earning fixed interest rates.

• CD laddering can help balance liquidity—how easily you can turn an asset into cash without losing value—  and returns. That way, you can reinvest maturing CDs at current rates and take advantage of the higher yields often associated with longer-term CDs.

• Adopting a CD ladder strategy starts with setting your financial goals and considering upcoming expenses, such as emergency needs, major purchases or tuition costs.

• This article will show you how a CD ladder works and how to build a CD ladder that works for your financial goals.

Savings strategies are always a balancing act between risk management and growth opportunity. One way to achieve this balance is by investing in multiple certificates of deposit (CDs) with different investment end dates, i.e. maturity dates. 

Called “CD laddering,” this approach is a great way to take advantage of the higher interest rates that typically come with longer-term CDs while still allowing you periodic access to your money. Just like a ladder, the CD on the lowest “rung” will always be closest to the maturity date. Likewise, higher-rung CDs have longer terms.

So, what is a CD ladder? A CD ladder is a series of CDs—typically a minimum of three—that are set to mature, or complete their term, at regular stages.

The answer to how a CD ladder works is quite simple. Pretend there’s a ladder in front of you and each rung represents a separate CD with a separate term. The rungs start from the shortest term (the bottom rung) to the longest term (the top rung). If you wanted to begin your ladder with just one CD, you’d put your money on just one rung of the ladder. Your second CD would go on the second rung and so on. 

Jonda Lowe, president of a financial services firm, gives an example of how to build a CD ladder with five $20,000 CDs spread out over five years. Initially, the ladder would look like this:

• $20,000 in a 12-month CD

• $20,000 in a 24-month CD

• $20,000 in a 36-month CD

• $20,000 in a 48-month CD

• $20,000 in a 60-month CD

Each year, one of the CDs will mature, at which point you could either withdraw the money or reinvest it in a new five-year CD. The second option keeps the CD ladder going so the money continues to earn interest.

When you’re ready to start your CD ladder, opening a Capital One account is quick and easy and typically takes about 5 minutes.  

“It’s easy to set up,” Lowe says. Start by opening several CDs with varying terms. Many banks let you do this online, but if you need help a banker or broker can create a CD ladder for you.

When considering how to build a CD ladder, you have to decide on the overall length of your ladder (or the time span of the longest-term CD) and the length of time between each CD’s maturity date.

While spacing maturity dates out by one year is common, you could set your CDs to mature at stages of your choosing—every six months or two years, for example. Regardless of the CD ladder length you end up creating, you’ll first have to purchase several short-term CDs when you begin to build it.

If you don’t expect to need the money on short notice, choose a less frequent maturity cycle. But if you need some of the money quickly (let’s say that a financial emergency hits), shorter maturity stages would give you quicker access to some of the funds. That could save you from an early withdrawal penalty, the fee some banks charge for withdrawing money from a CD before it matures.

Now that you know how to CD ladder, let’s talk about the advantages for your financial strategy. 

One of the benefits of CD ladders is that they can come in all shapes and sizes. You can adjust a CD ladder’s length, term and maturation frequency to match your financial goals. For example: building up your emergency savings or prepping for a big-ticket purchase.

Just keep in mind that CDs typically come with early withdrawal penalties, which can potentially wipe out your returns. So, make sure the maturities you select work with your cash needs.

Here are just a few of the most popular uses for a CD ladder:

Emergency fund

You can use CD laddering to start an emergency fund by structuring it to mature monthly with an average month’s expenses in each CD. You can reopen CDs as they mature, or the bank may be able to automatically open them for you. If an emergency arises, you’ll have a steady stream of maturing CDs to help cover your expenses.

Keep in mind that it may be worth setting aside at least some of your emergency stash in a checking account or savings account for quick access.

Big-ticket purchase

Your approach may be different when creating a CD ladder for a specific purchase. You could build your initial CD ladder in the same way described above, but when each CD matures you won’t reinvest the money in a new five-year CD. Instead, you would open a CD that matures within your overall savings time frame. If you’re still a few years away from a new home, for example, your new CD could have a 48-month term; if you’re three years out, 36 months, and so on.

College expenses

Consider CD laddering to help cover college expenses. Time it so that a CD will mature at the start of each semester or school year. Or, as your child nears college age—perhaps three or five years out—you could build a CD ladder to help keep their education fund growing and secure.

A CD ladder can offer you more flexibility than putting all your savings into one CD. Instead of waiting for a single long-term CD to mature, a CD ladder keeps only part of your money locked up at any given time. By dividing your money across multiple CDs with different maturity dates, you create a schedule where parts of your savings become available at regular stages. 

When determining how to build a CD ladder to meet your financial goals, consider current interest rates. Locking your money up could mean giving up liquidity—how easily you can turn an asset into cash without losing value—and interest rate risk. For example, when interest rates are expected to drop, it might make more sense to lock in the current interest rate with long-term CDs instead of creating a CD ladder, says William Stack, owner of a financial services firm.

Lowe agrees. “When rates are expected to stall or drop, CD ladders can cost you money,” she says. In this scenario, each time one of your CDs matures and you put your funds back into a CD, you might be locking in a lower—and less profitable—interest rate.

Short-term CDs and long-term CDs each play a different role within a CD ladder, and the right mix often depends on your personal financial goals and liquidity needs. 

• Short-term CDs mature more quickly, offering faster access to funds and greater flexibility. This can be useful if you want regular reinvestment opportunities or think you might need some of your savings in the near term. However, these CDs may, but do not always, offer lower yields compared to longer-term options.

• Long-term CDs lock in funds for longer periods and may provide higher returns in exchange for reduced access during the term. This can help stabilize returns within a ladder, especially when parts of your savings are intended for longer-term growth rather than near-term use.

A CD ladder strategy aims to help you earn competitive interest rates while maintaining regular access to some of your money for emergencies or new investment opportunities.

The question then becomes: What is a CD ladder strategy that works best for you?

Your strategy can support a range of savings goals, depending on whether you want easy access or higher return potential. 

• If you’re focused on risk management, a CD ladder spreads deposits across different maturity dates. This helps reduce the impact of interest rate changes and create a steadier, more predictable savings structure over time. This also spreads your money across different terms.

• If you want to maximize returns, a ladder may include more longer-term CDs that typically offer higher yields, helping boost overall earnings. As each CD matures, you can reinvest the funds into new longer-term options to help maintain a stronger overall return.

CD laddering may be a good choice when interest rates are rising if you want a high CD rate without giving up all flexibility. But you may need to be strategic to keep taking advantage of higher rates.

If you break larger CDs into smaller ones maturing at different times, this provides you with the opportunity to earn higher interest rates as CDs mature if interest rates have risen at that time.

While one CD ladder strategy might work for some people, it won’t work for everyone. It all comes down to how you feel most comfortable saving. Some things to consider:

• You can’t change rungs once you put your cash down. If you need your money before the CD term is up, you may have to pay penalties for taking it out early. If you need even more flexibility and access than a CD ladder can provide, a savings account might be more your style.

• CDs are typically FDIC insured, meaning your cash will be covered up to the limits you qualify for. And since you lock in your interest rates, a change in the economy or outlook from the Fed shouldn’t affect your future savings.

Neither option is better than the other. A CD ladder offers more long-term rate stability, while a high-yield savings account gives you the flexibility to adapt as your financial needs change. The right fit comes down to what you value more: structured, time-based growth or quick access to your money.

Because there are so many different choices with CD ladders, your best option might be to check with your personal financial advisor to see what opportunities are available and which CD ladder strategy, if any, is right for you.

A CD can be a dependable financial tool that may work well if you’re looking for a low-risk way to save your money and earn a predictable return. Opening a 360 CD allows you to lock in a rate that’s above the national average, ensuring your savings grow steadily over time.

First, you need to know how a CD ladder works. A CD ladder divides your savings across several CDs with different maturity dates, giving you a balance of dependable earnings and regular access to your funds through scheduled maturities.

As each CD matures, you can either withdraw the funds or reinvest them into a new CD. Reinvesting helps keep the ladder in place and can support continued growth over time.

By spreading your CDs across different terms, a CD ladder balances earning potential with flexibility. You can take advantage of higher rates on longer-term CDs while still maintaining access to part of your savings.