What Is a CD Ladder?

Tony ArmstrongNovember 2, 2018

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CD laddering is a strategy to take advantage of higher rates — usually reserved for long-term CDs — while freeing up portions of your money at short-term intervals.

Certificates of deposit tend to have the highest interest rates among savings accounts — at the cost of losing access to your money for periods of time. But the set-it-and-forget-it approach of a typical CD isn't the only way to use them.

What is a CD ladder?

A CD ladder is a way of setting up multiple CDs so they mature at staggered intervals. As opposed to repeatedly renewing a single CD that holds all your money, a CD ladder will get you higher interest rates without sacrificing accessibility.

COMPARE THE TOP CD RATES for your cd ladder

Here are examples of the CD rates you can lock in.

Marcus by Goldman Sachs CD

Marcus by Goldman Sachs High-Yield CD

Barclays CD

Barclays Online CD

Synchrony Bank CD

Synchrony Bank CD

NerdWallet rating 
NerdWallet rating 
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Read reviewRead reviewRead review
1-year APY

0.85%

With $500 minimum balance

1-year APY

0.40%

With $0 minimum balance

1-year APY

0.60%

With $2,000 minimum balance

3-year APY

0.85%

With $500 minimum balance

3-year APY

0.40%

With $0 minimum balance

3-year APY

0.75%

With $2,000 minimum balance

5-year APY

0.90%

With $500 minimum balance

5-year APY

0.40%

With $0 minimum balance

5-year APY

0.90%

With $2,000 minimum balance

Minimum Balance

$500

Member FDIC

Minimum Balance

$0

Member FDIC

Minimum Balance

$2,000

Member FDIC

» Want more access than CD ladders afford? Check out NerdWallet's best savings accounts

The benefits of CD laddering

The longer a CD's term — and sometimes the larger your deposit — the higher your rates. Some rates are over 3% for five-year CDs.

But while your money is locked away, interest rates could increase, and you wouldn't be able to take advantage of them. Or an emergency might leave you in desperate need of that cash, in which case you would incur a penalty for withdrawing money before the maturity date.

CD laddering provides several benefits:

  • Increased accessibility: Your cash will become available to you at frequent intervals.

  • Flexibility: You can decide how you want to split up your investments.

  • Better interest rates: You’ll be able to choose longer-term CDs with higher rates and still have certificates maturing on a regular basis.

  • Peace of mind: If interest rates go up, you’ll have cash to invest in new CDs. If rates fall, you still have money invested in long-term CDs that come with higher rates.

The traditional CD ladder model divides your investment evenly over five CDs, with one CD maturing each year. If you had $10,000 to invest, you could spread out your money like this:

  • $2,000 in a one-year CD

  • $2,000 in a two-year CD

  • $2,000 in a three-year CD

  • $2,000 in a four-year CD

  • $2,000 in a five-year CD

After your one-year CD matures, you can reinvest that money in a new five-year CD. When the second year ends, you can continue this pattern by reinvesting the money from your original two-year CD in another five-year CD. You'll eventually reach a point where your ladder is made up entirely of long-term CDs, which earn the most interest.

One CD will mature every year, meaning you can either continue investing in five-year certificates or move the proceeds to your checking account.

» If you're ready to explore options, browse this month's best CD rates

Alternative CD ladder structures

Dividing your investment equally among certificates isn't the only option. Some people like to build their ladders based on economic projections. When the direction of interest rates is fairly clear, you may want to approach your CD ladder a little differently.

When interest rates are rising, consider investing a higher percentage of your money in shorter-term CDs.

When interest rates are rising, consider investing a higher percentage of your money in shorter-term CDs. When rates are going down, aim to lock a higher percentage of your investment in the longest-term CDs you can afford. Keep in mind that a ladder with equally divided investments offers the widest safety net for your portfolio growth.

» If you're curious why rates are where they are: Learn more about historical CD rates

Your perfect ladder

One of the best things about laddering is that you don’t have to follow a single model. You can vary the amount you put in each CD depending on how much you expect to need at future intervals or vary the intervals when your CDs mature. Your perfect CD ladder should suit your investment time frame, need for income and liquidity, and comfort level when investing according to projected economic changes.

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