How to Build a CD Ladder

February 13, 2024

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What is a CD ladder?

A CD ladder is a savings strategy where you spread a lump sum of money across multiple CDs (certificates of deposit) with different maturity dates.

The goal of CD laddering is to lock in high APYs (Annual Percentage Yields) across multiple CDs, instead of lumping all of your funds into one CD. Those multiple certificates of deposit will mature at different points in time. As each CD matures, you'll be able to access your funds, which you could roll over to a new CD or take the money out to spend.

Read on to learn more about how a CD laddering strategy can work for you and your savings goals.

But first, a quick refresher: What's a CD?

A certificate of deposit (CD) is a type of savings product that typically offers a higher interest rates than a traditional savings account with a fixed maturity date. And if you open a CD at a FDIC-member bank, you can rest easy knowing your money is insured up to the maximum allowable by low, which is currently $250,000 per depositor, per FDIC-insured bank, per ownership category.

Something important to keep in mind with CDs: When you put money into a traditional CD, your funds are locked up for a set amount of time, meaning you typically can’t withdraw your balance before the CD matures without paying a penalty. Some banks offer no-penalty CDs, which usually allow you to withdraw your balance beginning seven days after funding, with no penalty.

When choosing a CD that's right for you, consider your savings goals as well as how much flexibility you'd like to have in terms of accessing your cash.

All that being said, for the purposes of this article, we’ll be looking at traditional CDs, where you’re locked into a rate for a fixed amount of time.

By spreading your pot of money across multiple CDs, a CD ladder offers you flexibility.

The benefits of a CD ladder

When you put all of your money into a single CD, your money is tied up until your CD matures (unless you’re willing to pay an early withdrawal penalty). Depending on your situation and goals, however, you may want to have a little more flexibility.

That's where CD laddering can come in handy.

By spreading your pot of money across multiple CDs, a CD ladder offers you flexibility. Part of your money becomes accessible each time one of your CDs mature.

It’s also worth noting that while fixed-rate CDs provide a predictable rate of return, CD rates available in the market may fluctuate depending on a number of factors. Since CD rates can go up or down at any time, laddering your CDs can help you hedge against the uncertainty of how rates will shift.

Another perk of CD ladders? You’re able to take advantage of rates on longer-term CDs, which are typically higher, without committing all of your money to that CD.

Example of a CD ladder

To understand CD laddering, it may help to start with a basic example. Say you use $25,000 to build a CD ladder that matures in one-year increments:

$5,000 in a 12-month CD with 2.50% APY*
$5,000 in a 2-year CD with 2.55% APY*
$5,000 in a three-year CD with 2.60% APY*
$5,000 in a four-year CD with 2.65% APY*
$5,000 in a five-year CD with 2.80% APY*

When the 12-month CD matures, open a new five-year CD. When the 24-month CD matures, open another five-year CD, and so on. In five-years, you’d have only the higher-yielding, five-year CDs in your ladder – and every year, one of them would mature.

The idea is that the first part of your ladder is built with baby steps (shorter-term CDs) so that you have access to some of your savings each year. As time passes, your ladder will evolve so that it’s primarily constructed of longer-term CDs (earning you higher APYs), but you still have access to some of your cash each year.

*Note: Stated APYs in the example above are for illustrative purposes only and do not necessarily reflect APYs that are currently available).

The idea is the first part of your ladder is built with baby steps so that you have access to some amount of cash each year.

CD laddering strategy: a closer look

Let's say for your savings goal you want to put your money in CDs that earn the highest possible interest rates. Typically, this means selecting CDs with longer terms. But you might be uneasy at the thought of locking up all of your cash for an extended period of time. So what do you do?

In this case, similar to the example we outlined above, you could split your money and spread the cash across short-, medium-, and long-term CDs that mature at staggered intervals - like the steps of a ladder. When your short-term CD matures, you can take that money (and the interest you’ve earned on it) and put it in a long-term CD. Alternatively, if you need the cash when the CD matures, you can withdraw the funds.

Eventually your ladder would consist of only long-term, higher-yield CDs. Basically, this laddering approach allows you to gradually commit cash to longer-term, typically higher-yield CDs.

How to build a CD ladder

Start by deciding how much you want to save in CDs. Be realistic about what you’re comfortable putting away since your money is going to be tied up. You’ll eventually have access to that money again (and it will have grown!), but whatever amount you’re using to build your CD ladder shouldn’t be a financial strain.
Determine how frequently you want your CDs maturing and how many CDs you want to open. A ladder may consist of five CDs (the example we used above), each maturing annually, but perhaps you want your CDs maturing at more frequent intervals. That may require more CDs. You can design your CD ladder however you want – the key is deciding on the total amount you’re putting in and how frequently you want CDs to mature.
Build your CD ladder. Once you’ve determined how much you want to save and how many CDs you want to open, open your CDs, staggering the CD terms so that your money will mature at different dates on a rolling basis (every year, every six months…whatever you choose).
Continue laddering. Once your first CD matures (in the example above it would be after 12 months), use the money from that CD to fund a longer-term CD if you wish. Alternatively, if you need the cash, you can withdraw it to your bank account at this time. Each time a CD matures, you’ll have the option to renew it or withdraw your money.

What is the best CD ladder strategy?

There is no “best” strategy – it’s about picking the strategy that’s appropriate for you based on how frequently you’ll want access to your cash and what you’re trying to save money for. Here are some general tips:

If you don’t think you’ll need cash in the near future, the traditional strategy outlined above is a good starting point.
If you think you may need cash in the near future, or on a regular basis, laddering with shorter-term CDs could be a good option.
If you don’t know when you’ll need cash and want a blend, you can try what’s called the CD barbell strategy. This means you’ll spread your money across a mix of both short-term and long-term CDs. Learn more about CD barbells here.

Be prepared for an emergency

It’s generally a good idea to have three to six months of living expenses set aside as your emergency fund. You could set up a CD ladder to do this, but again, be aware that access to your money is fairly restricted depending on your CD terms.

If that makes you uneasy, consider using a high-yield savings account or even a no-penalty CD for your emergency fund instead.

If you have questions about whether a CD laddering strategy is appropriate for you and your goals, consider speaking with a financial advisor who can help you learn more about your CD savings options.

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This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this website were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA, Goldman Sachs & Co. LLC or any of their affiliates, subsidiaries or divisions.