What is a CD Ladder? And How to Build One

Written by Kim PinnelliUpdated: 29th Sep 2021
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Tying up your money in a certificate of deposit (CD) isn’t always a good idea if you will need it before the CD matures.

But the higher CD rates lure you in, making you think you can do it.

Instead of tying up all your funds in a long-term CD, consider a CD ladder.

What is a CD Ladder?

A CD ladder spreads your money over a series of CDs, each with a different maturity. You invest a portion of your money in longer-term CDs and some in shorter-term CDs.

This way, you always have access to funds as the CDs mature without risking paying unnecessary penalties.

How to Build a CD Ladder

It’s easier than you think to build a CD ladder. Here’s an overview.

You’ll take a sum of money (whatever you can invest) and divide it equally over 5 investments. The 5 investments are 5 different CDs, each with different maturity rates ranging from 1 year to 5 years.

As each CD matures, you will roll it over into a 5-year CD, so at the end of 5 years, you have five 5-year CDs. You do this to get the higher APYs since 5-year CDs pay higher rates.

Building a CD Ladder Example

You have $30,000 to invest, so you break it down into five $6,000 investments and invest as follows:

  • $6,000 in a 1-year CD
  • $6,000 in a 2-year CD
  • $6,000 in a 3-year CD
  • $6,000 in a 4-year CD
  • $6,000 in a 5-year CD

At the end of year 1, you’ll roll the $6,000 plus the interest you earned in the first CD over into a 5-year CD. The same with years 2, 3, 4, and 5. After year 4, all five CDs will have a 5-year maturity and will earn higher APYs.

But here’s the trick – you have only a short period to do this – usually 1 to 2 weeks. Your bank will tell you when your maturity date is up and the date, they’ll automatically roll the CD over to a CD with an identical term unless you say otherwise.

In that grace period, withdraw the funds (there’s no penalty) and invest what you can (hopefully all of it) into a 5-year CD.

>> More: How to Open a CD

What is the Best CD Ladder Strategy?

Any CD ladder strategy that suits your financial needs is the best one for you. Some people prefer shorter-term CDs for the peace of mind of having access to their funds every 6 months, just in case.

Shorter-term CD ladders require more legwork, though, so make sure you’re able to handle it.

Other people prefer longer-term CDs for the higher APY earnings and less work involved. Just remember, you can’t touch your money until maturity (or if you do, you’ll pay penalties).

>> More: How Do CDs Work? 

Pros and Cons of CD Ladders


  • You have more access to your funds when each CD matures. If you need the money, you can withdraw it, but it’s best to leave it and let it grow.
  • You can choose the CD maturities that fit your needs. A 1, 2, 3, 4, and 5-year CD laddering is one option, but you can create your own strategy.
  • You can take advantage of the higher APYs on the longer-term CDs in your ladder.
  • You lock in interest rates for the term of each maturity, so you don’t have to worry about interest rates falling.


  • You tie up your money, which means you can’t invest in other more aggressive and higher return investments
  • Even though longer-term CDs have higher APYs, they are still low compared to other investments

Alternatives to CD Ladders

  • Mini CD Ladders: If longer-term CDs worry you, ladder your funds in shorter-term CDs, such as 3, 6, 9, and 12 month CDs. This way, you have access to your funds much faster if you need them.
  • Uneven Splits: Rather than investing equal amounts in each CD, split them up based on the current interest rate environment. If rates increase, put more money in the shorter-term CDs and if rates are decreasing, focus on the longer-term CDs.
  • Invest in the Stock Market: Take advantage of dollar-cost averaging and invest money in the stock market monthly. Set up a specific amount each month to contribute and buy shares no matter the price. Eventually, you’ll have a lower average stock price’ than if you tried to time the market.
  • Bonds: Investing in bonds is a low-risk investment but with returns slightly higher than CDs. Bonds often have longer maturities, and like CDs, the longer the maturity, the higher the return.

Are CD Ladders a Good Investment?

CD ladders can be a good investment for some of your money. Don’t rely on it for retirement savings or large gains, but it’s a good investment for steady and certain returns.

Are CD Ladders Good for Retirement?

CD ladders can help increase your retirement funds, but don’t use them exclusively for retirement funds.

The rate of return is still minimal compared to other, more aggressive investments, such as stocks.

Bottom Line: What Is a CD Ladder?

A CD ladder is a great way to take advantage of a solid investment while maximizing your returns.

Choose a CD ladder with terms you can handle, leaving your money untouched, allowing the funds to grow.

Kim Pinnelli
Kim Pinnelli

Kim Pinnelli is a Senior Writer, Editor, & Product Analyst with a Bachelor’s Degree in Finance from the University of Illinois at Chicago. She has been a professional financial writer for over 15 years, and has appeared in a myriad of industry leading financial media outlets. Leveraging her personal experience, Kim is committed to helping people take charge of their personal finances and make simple financial decisions.