How to Build a CD Ladder: Steady Access, Better Rates, Less Timing Risk

Build a CD ladder step by step, compare it with a single long CD, and see how ladders balance access to cash with higher long-term rates. Includes a worked example.

By the Dayob Editorial Team · Updated · 3 min read

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Long-term CDs often pay more, but they lock up your money. Short-term CDs keep your money available, but you may earn less and have to reinvest at whatever rates exist later. A CD ladder is a simple way to get some of both.

What a CD ladder is

Instead of putting all your savings into one CD, you split it across several CDs that mature at regular intervals. When each one matures, you either use the money or reinvest it in a new long-term CD at the top of the ladder.

Building a 5-year ladder

Suppose you have $25,000:

CDAmountTerm
1$5,0001 year
2$5,0002 years
3$5,0003 years
4$5,0004 years
5$5,0005 years

After the first year, the 1-year CD matures. You reinvest it in a new 5-year CD. Each following year, another CD matures and you do the same. After four years, you hold five 5-year CDs, one maturing every year, all earning long-term rates.

Benefits

  • Regular access: part of your money becomes available every year (or more often, with a shorter ladder) without penalties.
  • Less timing risk: you don't have to guess whether rates will rise or fall; you reinvest a portion each year at current rates.
  • Higher average rate than keeping everything in short CDs, if long-term rates are higher.

Drawbacks

  • When short-term rates are higher than long-term ones (an inverted yield curve), the long rungs may pay less.
  • It takes some tracking; calendar reminders for each maturity date help.
  • Much of your money is still tied up at any given time.

Shorter ladders

For an emergency fund or near-term goals, a ladder of 3-, 6-, 9- and 12-month CDs gives access every quarter. The same idea works with any interval.

Estimating the return

Calculate each rung separately with the CD calculator, then add them. With $5,000 rungs at 4.00%, 4.10%, 4.20%, 4.25% and 4.30% APY for 1 to 5 years, the first-year interest from the 1-year CD is $200, and the 5-year rung grows to about $6,172 by maturity. Rates here are only examples; use current offers from your bank.

Variations

  • Barbell: money split between very short and very long CDs, with nothing in the middle.
  • Bullet: CDs bought over time that all mature at once, for a known future expense such as a down payment.
  • Treasury ladders use Treasury bills or notes instead of CDs; their interest is exempt from state income tax.

Grace periods

When a CD matures, banks usually allow a grace period, often 7 to 10 days, to withdraw or change terms before it renews automatically. Missing it can lock your money into a new term at whatever rate the bank offers. Learn more in types of CDs.

Educational content only, not financial advice.

Further reading from official sources

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