What is a CD ladder?
A CD ladder splits your savings across several CDs with staggered terms, say one to five years, so one matures every year. Each time a CD comes due, you either use the money or buy a new five-year CD. After the first cycle, every rung earns a long-term rate, but you still get cash back every year.
It solves the CD’s main drawback: locking up all your money until one date. You keep regular access, and you’re never stuck with a single rate.
How much can you make with a CD ladder?
With the example rates, $50,000 split across one- to five-year CDs earns about $10,285 over five years, and about $22,643 over ten if each maturing CD rolls into a new five-year CD at today’s rate. The first year alone earns $410 on the one-year rung, and the five-year rung earns $2,050 by maturity.
“I have $50,000 to ladder across one- to five-year CDs. What will it earn in five years?”
About $10,285 in interest at the example rates, with one CD maturing every year. Try this scenario
“What if I keep the same ladder going for ten years?”
About $22,643, if five-year CDs still pay 3.8% when each rung renews. Try this scenario
“I want $100,000 working for a year but need some of it every quarter.”
Four CDs of 3, 6, 9 and 12 months at about 4.1% to 4.2% earn about $4,112, with $25,000 coming due every three months. Try this scenario
Is CD laddering a good idea now?
It’s a hedge, not a bet. If rates fall, the longer rungs keep paying today’s rates for years. If rates rise, a rung matures every year to be reinvested higher. When short CDs pay more than long ones, as in the example, a one-year CD renewed would earn more only if today’s short rates last, which is the bet a ladder avoids.
The results compare your ladder with putting everything in the longest CD and with renewing a short CD at today’s rate. The ladder usually lands in between, with steadier access to your money than either.
Are CD ladders good for retirees?
They suit retirees who want predictable cash on a schedule: each rung can cover a year of spending that Social Security or a pension doesn’t. The money is FDIC insured up to the limits and can’t lose value. The trade-off is that CD rates rarely beat inflation by much, so ladders work best for the next few years of spending, not for long-term growth.
To see how long savings last when you draw on them, use how long will my money last? For a single CD, the CD calculator adds the early withdrawal penalty.
CD ladder FAQ
How many rungs should a CD ladder have?
Four or five is common: enough that something matures regularly, few enough to manage. Match the spacing to how often you might need cash. Yearly rungs suit savings you rarely touch; three- or six-month rungs suit an emergency fund or money you’re setting aside for a purchase.
What do I do when a CD in the ladder matures?
Either take the cash or buy a new CD at the longest term in your ladder, which keeps the steps evenly spaced. Act during the grace period, often 7 to 10 days, because many banks renew automatically for the same term at whatever rate they pay then.
Can I build a CD ladder with brokered CDs?
Yes. Brokerages sell CDs from many banks, so you can pick the best rate for each term in one account, and each issuing bank’s FDIC coverage applies separately. Brokered CDs usually can’t be cashed in early; you’d sell them on the market instead, possibly at a loss.
Is a CD ladder better than a high-yield savings account?
It depends on where rates go. A savings account’s rate moves every time the Federal Reserve does, while a ladder locks in today’s rates for years. If rates fall, the ladder wins; if they rise, savings catch up faster. Many people keep emergency cash in savings and ladder the rest.
The formulas are on the methodology page.