CD Ladder: What It Is And How to Build One

LUHUANFENG/Getty Images; Illustration by Bankrate

A CD ladder spreads your savings across multiple certificates of deposit with different maturity dates, creating regular access points while capturing the higher interest rates that longer-term CDs offer. This strategy solves the classic CD dilemma: locking money away for years to get better rates, or accepting lower returns to maintain flexibility. With a properly built CD ladder, you get both — higher yields and access to a portion of your money every 6-12 months.

Currently, top 5-year CD rates hover around 4.00% APY, making laddering an attractive middle ground between the instant access of savings accounts and the commitment of long-term bonds.

What is a CD ladder?

A CD ladder is a savings strategy where you open multiple CDs with different maturity dates — say, 1-year, 2-year, 3-year, 4-year, and 5-year terms — all at once. As each CD matures, you reinvest that money into a new long-term CD (typically 5 years) at whatever rate is available then.

The result: After your initial setup period, you have a CD maturing every year, giving you regular access to funds without sacrificing the higher rates that longer-term CDs offer.

Here’s how it works in practice:

You have $5,000 to invest. Instead of putting it all in one 5-year CD (and locking it away completely), you split it into five $1,000 CDs:

• CD 1: 1-year term
• CD 2: 2-year term
• CD 3: 3-year term
• CD 4: 4-year term
• CD 5: 5-year term

When CD 1 matures in year one, reinvest that $1,000 (plus interest) into a new 5-year CD. When CD 2 matures in year two, do the same. By year five, all your CDs are 5-year terms earning top rates — but one matures annually.

Pros

• Rate protection both ways: Rising rates? Your maturing CDs can catch the wave. Falling rates? Your existing long-term CDs stay locked at yesterday’s better rates.
• Liquidity on your terms: A CD matures every 6-12 months (depending on your ladder structure), giving you regular decision points without early withdrawal penalties.
• Predictable returns: Unlike stocks, you know exactly what you’ll earn. No surprises, no volatility.
• Zero risk to principal: FDIC insurance covers up to $250,000 per depositor, per institution. Your money is as safe as it gets.

Cons

• Opportunity cost: The S&P 500 has historically returned 10% annually over long periods. You’re trading potential gains for guaranteed safety.
• Inflation risk: If inflation runs at 3% and your CDs earn 4%, you’re only gaining 1% in real purchasing power. High inflation years can eat into your returns.
• Still partially locked: Yes, you get annual access to a portion of your money — but you can’t touch a majority of it in any given year without penalties.
• Rate timing guesswork: Building a ladder in early 2026? You’re betting rates won’t spike dramatically later in the year.

Bottom line: CD ladders are about maximizing certainty while maintaining some flexibility.

How to build a CD ladder: 3-step process

1. Decide your structure

Choose how many CDs you want (3-5 is typical) and your longest maturity. Common setups include:

• More aggressive liquidity: 6-month, 1-year, 18-month CDs
• Standard: 1, 2, 3, 4, 5-year CDs
• Maximum yield: All 5-year CDs opened at 1-year intervals

Split your total investment equally across all CDs. Have $5,000? Five CDs get $1,000 each. Of course, you can always add more rungs based on your strategy.

2. Shop for the best rates

Here’s where most people leave money on the table: They open all CDs at their current bank for convenience. In some cases, this isn’t the best strategy.

Current rate spreads between banks can be 0.5-1.0 percentage points — that’s $250-500 in lost interest on a $5,000 ladder over five years.

Step 3: Set up reinvestment reminders

Mark your calendar for 30 days before each CD matures. This gives you time to:

• Compare current CD rates (they change constantly)
• Decide: reinvest to maintain the ladder, or use the funds (here’s a primer on your options when your CD matures)
• Avoid automatic rollovers at your current bank’s potentially worse rates

Most banks send maturity notifications, but they often arrive with only 10 days’ notice — which may not be enough time to rate shop properly. Be proactive.

Alternative CD ladder structures

There are several ways to modify a traditional CD ladder strategy based on your goals:

• Mini CD ladder: Creating a CD ladder with only shorter-term CDs could be an option for savers who don’t wish to invest in longer-term ones. For instance, such a ladder could consist of terms of six, nine, 12 and 18 months.

• Barbell CD ladder: A barbell CD strategy is similar to a traditional CD ladder, but the middle rungs are missing. As such, short-term CDs make up one end of the structure, while long-term CDs comprise the other end. A potential benefit of this is you could have access to some of your funds sooner, while taking advantage of longer terms with potentially higher rates, if available.
• Bullet CD ladder: Open several CDs with different term lengths that will all mature simultaneously. For example, open a five-year CD now, a four-year CD next year, and a three-year CD the following year – all maturing in the same target year. This approach works well for planned major expenses like a down payment or college tuition.

Are CD ladders good investments?

Short answer: Yes — but only for the right type of money.

CD ladders are designed to protect money you’ll need in 2-5 years while earning significantly more than what a traditional savings account would pay.

When CD ladders make sense:

• You’re saving for a mid-term goal: (wedding in 3 years, home down payment in 4 years)
• You want zero risk to principal: (retirement funds in bonds/CDs, not all stocks)
• You can commit funds for at least 1-2 years without touching them
• Current CD rates beat savings rates by 1%+

When CD ladders don’t make sense:

• This is your emergency fund: Use a high-yield savings account instead. You need instant access to emergency money, and early CD withdrawal penalties (typically 3-6 months of interest) defeat the purpose.
• Your time horizon is 10+ years: Historical stock market returns (10% annually) significantly outpace CDs over long periods. For retirement savings decades away, CDs may be too conservative.
• You’re chasing maximum returns: Current CD rates won’t match stock market potential.

Rate environment matters

CD ladders perform best when:

• Longer-term rates exceed shorter-term rates
• Rate volatility is expected (Fed policy uncertain, economy shifting)
• Inflation remains moderate (3% or below)

CD ladders perform worse when:

• The yield curve inverts (short-term rates exceed long-term — not currently the case)
• Inflation spikes above CD yields (eroding real returns)
• Rates are clearly trending up rapidly (you’d prefer shorter terms to capture increases)

Bottom line

CD ladders are a “good investment” if your definition of “good” is “safe, predictable, and better than a savings account.” They’re not the best investment if your definition is “maximum growth potential.”

FAQs about CD ladders

• Is laddering CDs a good idea?
  

  CD laddering makes sense if you want higher yields than a savings account (currently 1%+ better) while maintaining some liquidity. It’s ideal for mid-term goals 2-5 years away where you can’t afford stock market risk. Skip it if: this is emergency fund money (needs instant access), you have high-interest debt to pay off first (better ROI), or your timeline is 10+ years (stocks historically outperform).

• How much does a $10,000 CD make in a year?
  

  At current rates, a $10,000 CD earns approximately:

  • 1-year CD at 3.75% APY: $375 in interest
  • 5-year CD at 4.25% APY: $425 in year one (compounded annually)

  For a $10,000 CD ladder (split across 1-5 year terms), you could expect around $400 in year-one interest, with returns increasing as shorter CDs mature and get reinvested at longer terms. Here’s an in-depth breakdown of how much investing $10,000 in a CD could earn you in 1 year.

  Calculate your exact returns with our CD calculator →