How to Build a CD Ladder

Investing in certificates of deposit is a good way for investors to minimize risks and keep a percentage of their income unaffected by changes in the stock market. While CDs offer financial security in that you aren’t going to lose the money you’ve added – you can miss out on interest rate increases if you save your money in CDs over a long period of time.

Using a CD ladder helps you beat the rate cycles and avoid missing out on interest rate increases. When you ladder CDs, you can obtain new CDs and take advantage of higher interest rates while still having access to your money.

How to Build a CD Ladder

You decide how many years you want to invest, and that becomes the length of your ladder. Each year you invest is like a “rung” on a ladder. Take the money you have to invest and divide it over the number of years you plan to invest – so if you have $25,000 and plan to invest over 5 years, you’ll invest $5,000 in 5 different CDs with increasing maturity dates. For example:

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

After your first year, the first rung of your ladder matures, and each of your other CDs take a step down on the ladder. The 2-year CD now has one more year to maturity, the 5-year CD now has four years left til maturity, etc.

The money from your 1-year CD that just matured can be re-invested into the open rung of your ladder, which in this example is your 5-year rung, by purchasing a new 5-year CD. If you need to use the money for something else, you can, which is why the CD ladder is more liquid than simply putting the full $25,000 into a single CD for a long period of time. Each year, you have access to money and can make investment decisions based on the market, and your own unique financial needs at that time.





If interest rates increase, each time your CD’s mature, you have the opportunity to re-invest in a new CD to take advantage of that higher rate. Because you’re always replacing the highest “rung” of your ladder (the CD with the longest maturity date), you’ll always be taking advantage of the highest interest rates available at the time you’re investing. Alternatively, if they decrease, you still have money invested in CDs with the previously higher interest rates, minimizing the amount of money you’re investing in lower interest certificates.

In addition to the benefit of taking advantage of interest rates with secure investments like certificates of deposits, by setting up multiple certificates that mature annually, you’ll always have access to some of your money in case something unexpected should occur. You don’t want to withdraw money from certificates of deposits before their maturity date because of the penalties and loss of earnings involved.

Where to open CD Ladders

You can start CDs at almost any bank, but you should start by looking at banks that offer the highest interest rates so you can earn the best return on your investment. Here are some of the best online high interest savings accounts, and some of the highest interest rates. Always be sure to shop around.




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Date published: August 3, 2010.

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Ryan Guina is the founder and editor of this site. He is a writer, small business owner, and entrepreneur. He served over 6 years on active duty in the USAF and is currently serving in the IL Air National Guard. He also writes about money management, small business, and career topics at Cash Money Life. You can also see his profile on Google.

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