Your Ultimate Guide to Certificate of Deposit Ladders (CD Ladders)

By Jamie Cattanach · June 11, 2022 · 9 minute read

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Your Ultimate Guide to Certificate of Deposit Ladders (CD Ladders)

When it comes to saving for your best financial future, you’ve got lots of options — including CD ladders.

A CD ladder, or certificate of deposit ladder, allows you to take advantage of the best parts of CDs (relatively high yield at a relatively low risk rate) while circumventing the worst parts of CDs (having your money locked away for a long period of time). It allows you to create a series of CDs with staggered maturity dates, so you can access cash when and if you need it.

Setting up a CD ladder up can require a bit of strategizing and shopping around to get the right arrangement for needs. Let’s take a closer look at what a CD ladder is, how it works, tips on opening one, and alternatives that might yield similar benefits. Here we go!

What Is a CD Ladder?

In order to fully understand CD ladders, we must first tackle a more basic question: What is a certificate of deposit?

A certificate of deposit, or CD, is a kind of savings vehicle in which you put down a lump sum — such as $500, $1,000, or even $5,000 — for a set amount of time, ranging from a few months to a whole decade, in exchange for a guaranteed growth rate (i.e., interest).

While the interest rate on a CD is usually relatively low compared to what you might get by investing in the stock market, it also carries a much lower risk. CDs are usually FDIC insured. This makes investing in CDs a safer way to store savings you don’t want to leave vulnerable to market fluctuations — but which you would like to see some growth on. It’s also possible to use a CD to secure a loan.

The downside: Generally speaking, the highest interest rates require large deposits put down for a long period of time. Locking a large sum of money away for five years longer can be a weighty decision — and could also keep you from potentially enjoying higher interest rates, which will continue to fluctuate while your money’s on hold.

That’s where the CD ladder comes in and can be a wise choice. It’s a strategy that allows you to glean the best benefits of CDs while avoiding many of the downsides. With a CD ladder, you’ll spread your investment out over a number of CD “rungs,” including some shorter-term CDs that will allow you to access some of your profits earlier.

Now that you know this basic financial info, let’s take a closer look at just how a CD ladder works.

CD Ladder: How It Works

With a CD ladder, you’d invest your money in a variety of CDs with different maturity dates. Generally, each rung, or individual CD, will mature one year later than the previous one.

Then, as each CD matures and you’re able to access your money (plus the interest you’ve earned), you can reinvest it in another CD with the longest of the terms you’ve chosen. This means you’ll continue to earn money on your investment for double the term of the longest-term CD you took out initially.

Let’s clarify with an example.

CD Ladder Example

Let’s say you have $15,000 to invest. You decide to set up a CD ladder with five rungs.

Here’s what that might look like:

•   $3,000 to a one-year CD

•   $3,000 to a two-year CD

•   $3,000 to a three-year CD

•   $3,000 to a four-year CD

•   $3,000 to a five-year CD

Once the one-year CD comes to fruition, you’d reinvest that $3,000, plus whatever interest it earned, into a new five-year CD — and follow the pattern for each CD as it comes due. In this way, you can continue the ladder for a grand total of 10 years, reaping and reinvesting once annually.

Of course, if rates shift or your financial situation changes and you need cash, you have a built-in backup plan. You would be able to access some part of those funds at least once a year as one of the CDs matures. That’s something you wouldn’t have been able to if you’d just dumped the entire $15,000 into a 10-year CD in the first place. By creating a ladder, you know at least once a year, you will have the opportunity to invest your money in a different vehicle or use it for, say, an emergency or a goal you’ve been saving towards.

Keep in mind, too, that you don’t have to equally distribute your full investment among the rungs. You could invest different amounts at each level if that better suited your needs.

And you don’t need to open all of your CDs at the same bank, either. You can shop around to find the best interest rates at different levels and thereby maximize your yield.

All in all, CD ladders offer investors additional flexibility in their approach while still creating a low-risk earning strategy. Win-win!

Building a CD Ladder

Building a CD ladder is pretty easy. Here’s how to do it:

1.    Save up a chunk of money that you can afford to have locked up for at least a few months or a year.

2.    Distribute that sum among a series of CD ladder “rungs,” starting with a short-term maturity date and ending with a long-term maturity rate. (Many investors use five rungs, but you could use more or less if you wanted to.)

3.    When the shortest-term CD comes of age, reinvest that money, along with the interest it’s earned, into a CD with a term length equal to the longest-term CD you’ve already opened. (Of course, as circumstances demand, you can choose not to do this, thereby shortening your CD ladder.)

Voila: You’re now the proud owner of a CD ladder of your very own!

Benefits of CD Laddering

There are several benefits of CD ladders, including:

•   They allow you to make the most of your CD investment without locking away all the money for a long term.

•   They increase investor flexibility since you get to decide what amount you put in each CD and how long each term along the ladder is.

•   You may be able to take advantage of better interest rates since you’ll be reinvesting on a yearly basis, as opposed to having your money locked away at a certain rate for the long term.

•   Overall, CDs are a safe, FDIC-insured investment strategy, though their earning potential is also relatively low.

Recommended: Different Ways to Earn Extra Money with Interest

Drawbacks of CD Laddering

On the other hand, there are some drawbacks to CD laddering that are worth mentioning:

•   Even the best CDs have relatively low interest rates — so low that they may not even keep up with inflation.

•   You may be missing out on an opportunity to invest your money into the stock market, where it could stand to earn exponentially more than it would in a CD — though, of course, the stock market is a much riskier investment strategy.

•   If rates fall during the course of your CD ladder, you might wind up reinvesting your money into a CD with an even lower rate…which isn’t how most of us want to manage our money.

CD Ladder Alternatives

Is CD laddering not sounding quite right for your needs? We hear you and can help! Here are some alternatives that might better suit your needs.

•   Putting your money into a high-yield savings account, which may offer a similar (though potentially slightly less lucrative) low-risk growth potential. The upside here: It doesn’t keep your money locked up for a long period of time.

•   Investing your money in the stock market, which is considerably riskier but may offer higher returns than CDs over the long run.

Are CD Ladders a Good Alternative?

Here’s some advice on knowing whether CD ladders are a good choice for you versus the other alternatives. For some savers, CD ladders can be a good approach if you have a significant amount of money you wish to invest, you have low risk tolerance, and you still want to be able to access your funds in a flexible way.

That said, for those with a higher risk tolerance, investing in the stock market may be a better (though more volatile) route to sustained growth over time.

For those who are satisfied with the interest rate CDs currently earn but uncomfortable with having their funds tied up for a period of time, a high yield savings account, with its liquidity, might make more sense.

The Takeaway

CD laddering is one useful strategy for investing your money over time, allowing you to take advantage of the best parts of CDs while avoiding some of their biggest downsides (like locking away your money for a full decade). The laddering effect, which involves staggering the CDs’ maturity dates, can give you access to some of your money every year and allow you to possibly reap a higher interest rate if the market is rising.

That said, CD ladders aren’t for everyone. If you’re looking for a place to stash your cash at a super-competitive interest rate and have your funds available whenever you need ‘em, SoFi Checking and Savings might be the answer. You’ll get access to both checking and savings with no monthly maintenance fees or minimum balance — and you’ll earn an excellent APY if you set up direct deposit.

Better banking is here with up to 4.60% APY on SoFi Checking and Savings.


Is laddering CDs worth it?

As with any financial decision, only you can decide if laddering CDs is the right approach for your needs. If you have a lower risk tolerance and a decent amount of money to invest, it may be a strategy worth considering to earn steady interest and have regularly scheduled access to your funds.

Can you lose money in a CD?

While it’s not impossible, most CDs are a very low-risk investment vehicle. The funds in them are FDIC insured up to the standard $250,000, which means the FDIC will refund your money up to that amount should the bank you opened the CD with fail. That said, there are some kinds of CDs which are not FDIC insured, so you’ll want to make sure to double-check before you sign any paperwork.

When would you use a CD ladder?

A CD ladder can be a good investment strategy when you have a nice sum of money available (say, $500 to a few thousand or more) and can afford to lock up your money for a period of time, from six months to several years. It is best used when rates are relatively high, especially since you can shop around for the best rate at each “rung” on your ladder. This type of investment strategy is best suited to those with a relatively low risk tolerance and who will be satisfied with a modest but steady interest rate.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

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