Banking » Guides » The Beginner’s Guide To Building CD Ladders
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The Beginner’s Guide To Building CD Ladders

CD laddering is a savings strategy, which involves spreading funds equally across multiple CDs. Here's everything you need to know
Author: Lorraine Smithills
Lorraine Smithills

Writer, Contributor

Experience

Lorraine is a freelance finance writer with years of experience in the banking sector and after a successful career in one of the largest retail and commercial financial services providers. She has a passion for helping people with less financial confidence to get control of their money through budgeting, saving, and responsible credit practices.
Interest Rates Last Update: June 3, 2024
The banking product interest rates, including savings, CDs, and money market, are accurate as of this date.
Author: Lorraine Smithills
Lorraine Smithills

Writer, Contributor

Experience

Lorraine is a freelance finance writer with years of experience in the banking sector and after a successful career in one of the largest retail and commercial financial services providers. She has a passion for helping people with less financial confidence to get control of their money through budgeting, saving, and responsible credit practices.
Interest Rates Last Update: June 3, 2024

The banking product interest rates, including savings, CDs, and money market, are accurate as of this date.

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Table of Content

If you want to access higher rates for your savings fund, especially in high inflation times as of now, you may have considered CDs. However, many people are confused by the term CD ladders and what this means.

In simple terms, CD laddering is a savings strategy that involves spreading funds equally across multiple CDs. This is because you can use the higher rates offered with long-term CDs while keeping some funds semi-liquid with short-term intervals.

CDs typically have the highest rates of savings accounts, but the cost is that you lose access to your funds for a set period. Creating CD ladders provides an effective alternative to simply putting all your funds into one CD.

If this sounds like an interesting approach for your savings plans, read on as we explore CD laddering in more detail and how to build CD ladders.

Opening A CD Account

How to Build a CD Ladder for Specific Goals?

One of the attractive features of CD laddering is that you can adapt them for specific goals. This includes:

1. Cash Flow

If you want to manage your cash flow to keep a portion of your investment funds liquid, you can ladder CD. CD laddering is a great strategy, particularly for retirees who need to manage their cash flow. It allows you to keep a couple of years of money safe and accessible, while allowing the remainder of your portfolio to grow.

An example of how to build a CD ladder for cash flow is if you have $15,000, you could split this between three CDs, a one year, a two year, and a three year. This means that each year, a CD will mature, providing you access to $5,000 plus the interest you’ve earned. If you don’t need the funds, you can then reinvest in another three year CD. 

Don't forget to check current CD rates and compare between them.

2. Vacations

Whether you want to travel or take a vacation once a year, you can use a CD ladder to provide funds each year with increasing rates of return.

For example, if you save sufficient money for three vacations plus one this year, before your vacation break, put your funds into a 12 month, two-year and 3 year CD with an even split. This will have them expire when you most likely need access to the money.

You will need to continue saving into your travel savings fund throughout the year. Next year, when you’re ready to plan your trip, cash out your 12-month CD and put your travel savings from this year into another three-year CD.

If you don’t have sufficient funds, that would essentially be four vacations, you can build a ladder with shorter-term CDs, so you can lock in your disposable cash, rolling over funds when they mature until you reach the three-year vacation ladder.

3. Emergency Savings

An emergency savings fund is a great cushion to cover any financial emergencies. While keeping the funds in a basic savings account will allow access at any time, it will not provide a great deal of interest. However, you can address this by building an emergency fund CD ladder.

Depending on the number of months of emergency money you have saved, you will need CDs that correlate with your goals.

For example, if you have one year of living expenses in your emergency fund, take four months of this money and split this fund into a three month, six month, nine month and one year CD. The following month repeat this pattern and again with the last of your fund.

By month four, the first three month CD will have matured and provided a small return. If you need the money, you can use it. However, if you don’t need it, you can reinvest into a 12 month CD. As the months go by, you can repeat this process, until all of your CDs have a term of 12 months.

This creates a secure emergency fund, that is not only earning more interest than it would in a high yield savings account, but allows you to access money each month.

4. Home Improvements

If you’re planning a home improvement goal, your CD ladder may be a little more complicated. These types of mid term goals will require reinvesting new savings and having CDs mature as you’re working.

For example, if you’ve saved $10,000 so far and want to make your improvements in five years, it is a good idea to weigh your CDs towards the long term. A good split balance is $6,000 in a five year, and $1,000 each in one, two, three and four year CDs.

Each year, you can invest your new savings and the matured CD proceeds into a new CD that will mature in year five. For example, after one year, invest the funds into a four year CD.

After five years, all of your CDs will mature and you can make your home improvements.

CD Laddering banks
CD Laddering is a great way to maximize growth and more liquidity

How to Build a Semi Annual CD Ladder

If you want a CD ladder that offers maturing CDs semi annually, it will take a little planning. Assuming that you have $10,000, you’ll need to buy on day one:

  • $1,000 in a six month CD
  • $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
  • $1,000 in a five year CD

When the six month CD matures, use the funds to buy a new five year CD. After the first year, use the $2,000 to buy a six month CD, and a five year CD. Do this every year until you have a CD that matures every six months.

This will take a few years, but once you have all the CDs in place, you can auto renew to create a fully automatic CD ladder. Also, not all banks offer all terms, so it's important to focus on the best banks for CD laddering.

How to Build a Monthly CD Ladder

It is also possible to build a CD ladder with a maturing CD every month. For ease of calculation, we’ll assume that you have $12,000. On day zero, take $4,000 and split the money equally into a three month, six month, nine month and one year CD. Repeat this pattern next month and the following month.

When your first three month CD matures, reinvest the funds into a 12 month CD. Repeat this process each month as each CD matures. Continue this reinvesting strategy until only have 12 month CDs. This will allow you to access the higher rates of a longer term CD, but you’ll have a CD maturing every month.

How to Build a CD Ladder in Excel?

If you prefer to keep a track of all of your finances in Excel, it is possible to create a spreadsheet to monitor your CD ladder.

You’ll need to set up fields on your sheet for the term, maturity date and amount of each CD. If you’re investing with different banks and financial institutions, it may be a good idea to color code the CDs, so you know which one is with what specific bank or credit union.

In simple terms, you could have a layout like this:

CD Term
Amount
Maturity Date
3 months
1,000
12/23
6 months
1,000
3/24
12 months
1,000
9/24
24 months
1,000
9/25

This will allow you to clearly see what CDs are due to mature and when you need to reinvest. However, once you establish your ladder, you can start to include rates and calculate compound interest, so you can predict how much you’ll have to invest in your new CDs.

What Happens When A CD Matures
A CD grace period is a short period of time that follows the maturity date (Photo by IhorL/Shutterstock)

The Pros and Cons of CD Laddering

As with any financial product or strategy, there are both positives and potential negatives associated with CD laddering. It is important to be aware of these before you make any investment decision.

Pros
Cons
Potential to Maximize Long Term Interest
Lower Average Rate of Returns
Regular Cash Access
Early Withdrawal Penalties
Greater Flexibility
Not Inflation Proof
Peace of Mind
Impact of Declining Interest Rates

As of July 2024, longer-term CDs tend to offer quite high rates. For example, the best CD rates for 5 years offer more than 3.90% APY.  Since laddering allows you to eventually move all of your money into a longer term CD, you can capitalize on the higher yields.

While it is possible to achieve higher returns if you invested in a long term CD initially, this isn’t ideal, as your funds are locked up for significant time. 

However, with laddering, you can access a portion of your funds at regular intervals. If necessary, you can withdraw funds without needing to worry about penalties.

You can ultimately decide how you would like to split your investment fund and whether you want to reinvest with each CD maturity. 

You can decide if you want to switch banks, add more funds or use some of the money, which means you’re not locked into a rigid strategy.

In these turbulent times, even economists are struggling to predict future rates. CD laddering allows you to have greater peace of mind that you can adapt to changing rates. 

If the rates go up, you’ll have access to funds to invest in new CDs, but if the rates drop, you will still have access to the higher rates from your long term CDs.

While CDs are a popular short term investment, over the long term, there are other investment opportunities that can offer a higher rate of return. 

If you’re looking to maximize your returns, you may prefer to put some of your funds into stocks or other investments.

Most CD products have a big drawback – they have an early withdrawal penalty if you want to access the funds before it matures. This is typically a portion of the interest you could have earned, but the earlier you withdraw, the larger the penalty. 

Withdrawal penalties vary from bank to bank, so make sure you’re aware of what penalties could apply before opening a CD.

compare CD early withdrawal penalty
if you're looking for long term CD, it's recommended to compare CD options and withdrawal penalties, just in case. (Photo by Liubomyr Tryhubyshyn/Shutterstock)

CD rates are lower than inflation rate, so you may find that your CD investments don’t actually keep up with inflation.

If inflation rates start to decline, there is a risk that you will be reinvesting funds from a matured CD into ones with lower rates.

CD Laddering Tips for Investors

If you are considering CD laddering, there are some tips to help you to become a successful investor. These include:

  • Plan for the long term: Depending on your goals, you may be tempted to stick to shorter term CDs, but if you want to harness the best rates, you need to plan for the long term. You can adapt any of the strategies we’ve discussed above to longer term CDs. Ideally, you would use five year CDs to get the best rate and potentially address rising inflation.
  • Leapfrog CDs: Many people don’t have the funds to immediately buy long term CDs, but try leapfrogging. This involves investing in a long term CD when each of your short term CDs matures. If you want accessibility each month or quarter, this will take a little bit of juggling, but eventually, you will have a series of CDs that mature regularly.
  • Evaluate the Yields with Time Commitments: There is a balance between higher yields and a long term commitment. So, try to evaluate the increased return in compensation for tying your money up for longer. Just don’t forget to look at any early withdrawal penalties in case you need to liquidate early.
  • Comparison Shop: Finally, be aware that rates can significantly vary between financial institutions. So shop around for banks offering CDs, checking out banks, online banks and credit unions to find the best products. You don’t need to have all the components of your ladder with the same bank. In fact, spreading your CDs across multiple banks could allow you to access better terms and higher rates.
Financial Institution
12 Months CD APY
Minimum Deposit
4.80%
$0
5.00%
$0
3.50% (13 months)
$1,000
4.50% – 4.76% (11 months)
$2,500
4.35%
$0
5.25%
$1,500
4.70%
$2,500
4.00%
$1,000
4.91% – 4.96%
$5,000
5.50%
$1,000
5.45% – 5.35%
$1,000
5.40%
$1,000
5.05%
$2,500
5.00%
$1,000
5.00%
$2,500
5.15%
$2,500
4.50%
$0
5.00%
$500
5.20%
$25,000
2.00% – 3.00%
$500
4.30% (13 months)
$1,000
2.00%
$1,000
5.20%
$1,000
4.55% (11 months)
$250
4.00%
$50
5.15%
$1,000
5.00%
$1,000
5.40%
$100,000

Are CD Ladders a Good Investing Strategy?

CD ladders are a good option if you want to minimize risk and still have some degree of liquidity with your funds. You can create a ladder to suit your current and future requirements, planning the maturity dates to coincide with when you may need the funds.

However, there are some drawbacks. You will not be able to access the same potential returns that you could expect with other investment methods. You will need to think about your financial goals, and risk tolerance to determine if CD laddering is the right investment strategy for you.

How to Find the Best CD Ladder Rates?

Shopping for CDs need not be daunting as there are a number of ways to find the best rates.

  • Assess Your Current Relationships: Many banks and financial institutions offer existing customers access to exclusive products and rates. So, before you start CD shopping, check out the offerings at your current bank, online bank, or credit union.
  • Comparison Shop: While it is possible to do individual research, there are a number of online resources that allow you to comparison shop for financial products including CDs. For example, check for current CD rates for 1 year if you are looking for short-term CDs, and compare between the different providers.
  • Evaluate the Terms: Remember that the rate is not the only point of consideration when shopping for CDs. You need to also check the terms to ensure that you are happy. If you’re unsure if you can commit to a CD term, you don’t want to get stung with an excessive early withdrawal penalty.
  • Plan Ahead: Finally, don’t just think about your current CD needs, think about what products you’ll need for your ladder in the coming months. Most banks will advertise products and show a date of when the offer will expire. So, if you see a good rate but don’t need that particular CD now, take a note and refer back to it later.

FAQs

Vanguard Brokerage allows you to purchase and hold CDs from multiple banks with a single account. Vanguard CD ladder opens CDs with different terms with an initial investment of $1,000 and increments of $1,000.

Fidelity enables a CD ladder by constructing your CD, and you will be promoted to choose how you want to handle the funds at maturity. You can elect to have the maturing CDs automatically reinvest through the Fidelity Auto Roll service or return the cash to your Fidelity account.

Ally has a number of tools to help you to build your CD ladder. You can select long or short term CDs, with step by step instructions and calculators to estimate the potential earnings.

Chase offers customers the option to open a CD ladder at any branch. This will involve four CDs for the same amount with a minimum of $1,000 each. CD ladders are only available for qualifying Chase customers and you’ll get a Maturity notice to remind you of the auto renewal for your new term.

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Picture of Lorraine Smithills

Lorraine Smithills

Lorraine is a freelance finance writer with years of experience in the banking sector and after a successful career in one of the largest retail and commercial financial services providers. She has a passion for helping people with less financial confidence to get control of their money through budgeting, saving, and responsible credit practices.
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