How to Create the Ultimate CD Ladder

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Last updated on November 29, 2020 Comments: 17

It’s hard to earn interest on savings nowadays. At the time of writing, the Federal base rate is close to zero and all signs point to it remaining low.

Even so, we needn’t give up on interest entirely. With a bit of forward planning, it is still possible to generate earnings on your savings. How? By building a CD ladder.

What is a CD Ladder?

Certificate of Deposits (CD) are long-term savings accounts that typically offer higher rates of interest than normal savings accounts, in exchange for locking your cash away for a pre-determined period. In general, the longer the term, the higher the yield. A 5-year CD, for example, will pay much more than a 12-month CD.

Although you can withdraw if you want, there will usually be a penalty attached that could wipe out your earnings and even some of your principal.

So, what is a CD ladder? The CD ladder strategy is staggering multiple CDs to mature at regular intervals. You could set up your CD ladder so an account matures every three months, for example. You could even set up a monthly CD ladder.

The trick is to harness higher CD ladder rates than normal savings, while still maintaining regular access to your money.

How to Build a CD Ladder

To show you how to set up a CD ladder, we first need to see what we’re working with. The table below displays some illustrative terms and rates.

3 Month0.35%
6 Month0.60%
9 Month0.65%
12 Month0.75%
2 Year0.80%
3 Year0.85%
4 Year0.90%
5 Year1.00%

Remember, these are just representative examples. You’ll find the best current CD ladder rates underneath the CD ladder calculator below.

Phase 1 of our CD ladder simulation will use a combination of these maturities, before moving on to Phase 2, where we’ll build an automatic CD ladder using only 5-year terms.

CD Ladder example

Let’s assume you have $10,000. Here’s how to build a CD ladder so you have the opportunity to roll over or withdraw every three months.

On day zero, you buy:

  • $500 in the 3 Month CD
  • $500 in the 6 Month CD
  • $500 in the 9 Month CD
  • $2,000 in the 12 Month CD
  • $2,000 in the 2 Year CD
  • $2,000 in the 3 Year CD
  • $2,000 in the 4 Year CD
  • $500 in the 5 Year CD

As the 3, 6, and 9-month CDs mature, withdraw their $500 and use them to buy new 5-year CDs. Once the first year is complete, you’ll have:

  • $2,000 maturing today (original 12 Month CD)
  • $2,000 maturing in one year (original 2 Year CD)
  • $2,000 maturing in two years
  • $2,000 maturing in three years
  • $500 maturing in four years
  • $500 maturing in four years, three months
  • $500 maturing in four years, six months
  • $500 maturing in four years, nine months

With the $2,000 maturing today, buy:

  • $500 in the 3 Month CD
  • $500 in the 6 Month CD
  • $500 in the 9 Month CD
  • $500 in the 5 Year CD

Do the same with the $2,000 that matures each year until you have a total of 20 CDs, each maturing every quarter for the next five years.

You’ll have to be proactive for the first couple of years. But once you’re up and running, you can switch all your CDs to banks that offer auto-renewals – such as Ally Bank and Golden 1. Then you’ll have a fully automatic CD ladder.

Choosing CD providers

Some providers, such as First National Bank, don’t offer CD terms shorter than 12 months. Others, like Sterling Bank and SchoolsFirst FCU, offer terms as short as 1 month.

CDs are also often subject to minimum deposits of $500-$1,500. For the CD ladder example above, you may need to buy lower-value CDs with a bank like CapitalOne, which has no minimum deposit.

The best CD ladder strategy will mix and match for the optimum balance between terms, minimum deposits, and rates.

CD Ladder Calculator

Now you know how to set up a CD ladder, use our CD ladder calculator to run a CD ladder simulation and see how much you could earn, based on representative CD ladder rates.

The Benefits of CD Laddering

CDs yield higher rates than savings and checking accounts. CD laddering strikes a balance between earning those rates and maintaining regular access to cash.

While you could earn more by investing solely in 5-year CDs up-front, CD laddering mitigates the risk of incurring withdrawal penalties when you inevitably need to access funds before the term expires. If you follow our CD ladder strategy, you’re only ever three months away from an account reaching maturity.

Besides, if rates do go up in the meantime, you can always switch up when a CD matures. Which they regularly do in a CD ladder. And when you do renew, there are guaranteed returns. The fixed interest of CDs makes it easier to plan your finances, as well as protecting you from the unexpected.

Drawbacks of the CD Ladder

The major drawback of CDs is access to funds. While a CD ladder mitigates that downside, even a monthly CD ladder strategy leaves you unable to withdraw for 20 days a month (assuming a grace period of 10 days before the CD renews).

That said, choosing CDs with less stringent penalties can limit the damage early withdrawal can do. CDs from Comenity and First Internet Bank of Indiana carry maximum charges of a year’s interest. Once you’ve made it past 12 months, you’ll still come out on top even if you have to close out early.

And while CDs offer better rates than standard savings or checking accounts, they still pale in comparison to the returns possible from riskier investments like stocks and shares.

Accessing Cash with a CD Ladder

When considering how to build a CD ladder, one of the key questions is how regularly you’ll need access to funds.

As a general rule, you should ensure you have 3-6 months of living expenses in checking or instant-access savings before you lock your money away. That way, you should have enough for emergencies without incurring early withdrawal penalties.

Then it’s just a case of ensuring regular maturities so if the worst does occur, you’re only ever a few weeks from a CD term expiring.

CD Ladder Alternatives

Mini CD ladder

If you’re uncomfortable with locking your money away for long periods, you could consider how to build a CD ladder with only short-term CDs. The yields will be lower, but you’ll have greater flexibility, which may be more important for your current financial situation.

Uneven splits

Our CD ladder strategy split your $10,000 evenly. However, you could try splitting based on where you think interest rates are going. Favor short-term CDs when rates are rising, so you can renew for a higher yield sooner. Focus on long-term CDs when they’re going down, to lock in the better rate.

Stocks and shares

Investing in shares is a higher risk, but can come with higher rewards. To mitigate risk, invest long-term – ideally for five years or more – predominantly in passive funds. That way, you’re not banking on individual companies’ annual success, your investments simply reflect the wider market performance.

Bottom line

Once you know how to build a CD ladder, it’s a relatively low-maintenance way of earning higher rates of interest, with little risk, and regular access to funds.

It may seem intimidating at first, but once you’ve put in the groundwork, your CD ladder can be a fully automated path to higher savings yields.

Article comments

Tom says:

Anybody out there?? I’m just putting some feelers out there to see if there’s anyone interested in making a pretty substantial amount of cash in a short amount of time. Only thing this requires is that you have an active bank account or credit card in the US. No cash is required up front to start. Which means your account can be on a zero balance and that’s completely fine. +1(314) 856 1730, lets talk about the next deal

Diana says:

It is usually a simple process to put up a basic CD ladder. You can start with deciding the total amount you’d like to deposit into a CD ladder. Banks typically have a minimum deposit requirement for CDs to earn the advertised annual percentage yield (APY). Money in your CD will automatically earn interest – but only if you avoid withdrawing from it before it matures. The other thing that you need to figure out is how to divide your money for the ladder. You could divide your money equally into a 1-year, 2-year, 3-year, 4-year and a 5-year CD. This way you’ll have some liquidity on a yearly basis, and still have some money in higher-earning, long term CDs.

Anonymous says:

I have been considering building a IRA CD bond ladder with 5 5-year CDs to grab the higher yield and pay the early termination fee(s), if it makes sense. I was looking into Synchrony’s 5-year CD which currently pays 2.25%, however, it has a 180 day early termination fee. Thoughts?

Anonymous says:

Ally also offers bump-up CDs which they call “Raise Your Rate” with 2- and 4-year maturities. The 2-year allows you to bump your rate once, and the 4-year twice. You can build a ladder using just bump-up CDs, although the setup is a bit more complicated, but it will give you a hedge against interest rate risk.

Anonymous says:


How would you set up a ladder using just the bump-up cd’s? Can you please explain how you would do that – how often and how many cd’s?

Thank you.

Anonymous says:

Psst…you forgot that Ally adds a 0.25% bonus on top of the current interest rate when you roll the CD over.. You can change the term if you want

Anonymous says:

I am switching over to Ally and bought a few CDs. But, I think they’ve changed their early withdrawal fees:

“We will only charge a penalty if you make a withdrawal before the CD matures. For all CDs, the early withdrawal penalty equals 60 days’ interest. This penalty does not apply to No Penalty CDs.”

Looks good to me!

With that kind of no-big-deal penalty, I’m wondering if I could buy a few 5-year CDs. Maybe $500 a piece? If I have to get the money, it’s a smaller loss than if it were all in one (and I really don’t think I’ll need that money). Right now, I have some in a 12m and some in a 5y and I’m still deciding on what to do with the rest.

Anonymous says:

I’d take the penalty, too, like BobbyC said.
Just have to be extra careful on finding the right bank and fully knowing and understanding their requirements and penalty for early withdrawal.
If you really need the money right away / emergency, you won’t be so worried about what the penalty is.
However, if it’s a significant rise in rates, you’d have to compare the amount you’d lose via the penalty versus how much you might gain with the new rates, or at least how long it would take a new cd with higher rates to make up the difference. Too small of a rise in rates might not be enough to offset the penalty at all.

Anonymous says:

I have thought like bobby c for some time now but I’m glad to see there is another who thinks the same way. bob c

Anonymous says:

Currently Ally only applies a penalty of 60 days of interest on early withdrawal. Why wouldn’t you always want to get the 5 year CD at 2.4% even if you plan on taking the money out in 1 year. In this case, if you are 3 years into a 5 year CD and a compellingly higher rate is available you can withdraw the funds and open a new 5 year CD with only a 2 month penalty. If you invest $100,000 at 2.4% you’ll be earning around $200 a month. After 3 years you’ll have earned almost $7500 and it will cost you around $ 236 penalty to take all of the money out and fund a new CD or just because you need the cash. Most of the 5 year CDs I have researched have a 180 day penalty and worthy of more consideration.
With $100,000 in a 5 year CD at 2.4% after 1 year you’ll have earned around $2426 and it will cost you around $ 217 penalty so you’ll have an after penalty gain of $2209. If instead you invested in a 1 year CD at 1.24% you’ll have a gain of around $1247 at maturity. So I’ll take the penalty any time. Is my logic wrong? Somebody straighten me out if I am.

Anonymous says:

As a really conservative investor, I’d like to create one of these. Thanks for the excellent information.

Anonymous says:

Thanks for the excellent advice. Ally Bank seems to be a good place to start looking for a long term CD with good rates and limited early withdrawal penalty, if required.

Anonymous says:

I'd agree with KC, I've been buying 1 yr CDs. Rates can't get lower from here, and there are better opps in the TIP etf and/or I Bonds right now. I've done this with half my emergency fund, with the other half available to cover the interim.

Anonymous says:

I'd agree with KC, I've been buying 1 yr CDs. Rates can't get lower from here, and there are better opps in the TIP etf and/or I Bonds right now. I've done this with half my emergency fund, with the other half available to cover the interim.

Anonymous says:

I’d agree with KC, I’ve been buying 1 yr CDs. Rates can’t get lower from here, and there are better opps in the TIP etf and/or I Bonds right now. I’ve done this with half my emergency fund, with the other half available to cover the interim.

Anonymous says:

I’d agree with KC, I’ve been buying 1 yr CDs. Rates can’t get lower from here, and there are better opps in the TIP etf and/or I Bonds right now. I’ve done this with half my emergency fund, with the other half available to cover the interim.

Anonymous says:

My only concern right now locking into a 5 yr CD rate is that at some point rates have to go higher. You could be stuck at year 3 in a 5 yr CD with a rate that is equivalent to what a 1 yr CD is paying out currently. I guess the simplest solution to this would be to stop at 1 year CDs until the field improves a little. It would also solve the problem of tying up too much money too soon.

But I am a big fan of CDs. I think of them as my conservative investing. I have a large emergency fund, but it currently only gets 2% in the bank. I also have investments (retirement and long term savings). But I need something in-between and CDs are a good place.