How a CD ladder works
A CD ladder works by buying CDs of different lengths at once, then replacing each one with a new long-term CD as it matures. After the first round, every rung is a long-term CD earning a long-term rate, yet one comes due every interval.
- Split the money into equal parts, one per rung: $25,000 ÷ 5 = $5,000.
- Buy CDs maturing in 1, 2, 3, 4 and 5 years.
- When the 1-year CD matures, either spend the money or buy a new 5-year CD.
- Repeat every year. From year 5 on, all five CDs are 5-year CDs and one matures each year.
| Rung | Term | APY | Deposit | At maturity |
|---|---|---|---|---|
| 1 | 12 months | 4.20% | $5,000 | $5,210.00 |
| 2 | 24 months | 4.30% | $5,000 | $5,439.24 |
| 3 | 36 months | 4.35% | $5,000 | $5,681.30 |
| 4 | 48 months | 4.35% | $5,000 | $5,928.43 |
| 5 | 60 months | 4.40% | $5,000 | $6,201.15 |
CD ladder vs one CD vs a savings account
A ladder gives up some yield compared with putting everything in the longest CD, in exchange for regular access and the chance to reinvest at new rates. At unchanged rates, after 5 years:
| Strategy | Value after 5 years |
|---|---|
| Ladder, rolling each rung into a 5-year CD | $30,961.24 |
| Everything in one 5-year CD | $31,005.77 |
| Renewing 1-year CDs five times | $30,709.91 |
If rates fall, a ladder keeps some money locked at older, higher rates; if they rise, maturing rungs catch the higher rates. A high-yield savings account gives full access but its rate can change any day.
Short ladders
For money you will need within a year, use short rungs: four CDs of 3, 6, 9 and 12 months put a quarter of the money in reach every 3 months. At example APYs of 4.00% to 4.20%, a $25,000 quarterly ladder averages 4.10% APY. Treasury bills, sold in terms from 4 to 52 weeks, can build the same kind of ladder.[4] Price individual bills with the T-bill calculator.
Rates to plug in
The default APYs are examples, set a little below Treasury yields for the same terms; enter the rates you are actually offered. For reference, the FDIC's national average CD rates are far lower because they include banks that pay very little:[1]
| Term | National rate | National rate cap |
|---|---|---|
| 3 months | 1.14% | 5.79% |
| 6 months | 1.39% | 5.95% |
| 12 months | 1.76% | 6.20% |
| 24 months | 1.55% | 6.61% |
| 36 months | 1.39% | 6.75% |
| 48 months | 1.31% | 6.75% |
| 60 months | 1.41% | 6.86% |
The rate cap only limits banks that are less than well capitalized.[2] When longer CDs pay less than shorter ones, as the national averages do beyond 12 months, a ladder costs little and still protects you against falling rates.
InsuranceSpread large ladders so that no bank holds more than the insured amount: $250,000 per depositor, per insured bank, per ownership category.[3]
For a single CD's value, use the CD calculator; to see what breaking one early would cost, the CD early withdrawal penalty calculator; to compare APYs quoted differently, the APY calculator.
Related calculators
- CD calculatorValue at maturity from APY or rate, any term
- T-bill calculatorPrice, investment rate and the state-tax edge over a CD
- High yield savings account calculatorYour APY against the FDIC national average, in dollars
Frequently asked questions
What is a CD ladder?
A set of CDs with staggered maturity dates, so part of the money comes due at regular intervals while most of it earns longer-term rates.
How many rungs should a CD ladder have?
Often 3 to 5. More rungs mean smaller, more frequent payouts; fewer rungs keep it simpler. Match the spacing to how often you might need cash.
Is a CD ladder better than a high-yield savings account?
It locks rates in, which helps when rates fall, but limits access between maturities. A savings account is fully liquid but its rate can drop at any time.
What happens when a CD in the ladder matures?
You can withdraw the money or buy a new CD at the longest term. Many banks renew a maturing CD automatically after a short grace period, so act during that window.