How To Build and Maintain CD Ladders

by Ryan Guina

Many people prefer to keep a certain amount of cash in their investment portfolio, especially when investing for periods of 5 years or less. However, savings accounts do not always give the best return on investment for cash. Certificates of Deposit (CD) usually offer better interest rates than savings accounts because a CD guarantees the bank access to your money for a certain time period. This allows the banks to lend your money to other people and earn a profit.

The only problem with CDs is liquidity – you must leave the money in the CD until it matures, or you face an early withdrawal penalty. However, there are options to increase your access to your money. Building a CD ladder is a simple and effective method of investing your money at better interest rates while maintaining some access to the money.

How to build a CD ladder: Let’s use a 5 year ladder as an example. In year 1 you invest in 5 separate CDs, one each for lengths of 1, 2, 3, 4, and 5 years. At the end of each year, you reinvest the money into another 5 year CD (unless the money is needed for other purposes). Here is an example:

Year 1:
Rung 1: 1 year CD – 1 yr remains
Rung 2: 2 year CD – 2 yrs remain
Rung 3: 3 year CD – 3 yrs remain
Rung 4: 4 year CD – 4 yrs remain
Rung 5: 5 year CD – 5 yrs remain

Year 2:
Rung 1: 2 year CD – 1 yr remains
Rung 2: 3 year CD – 2 yrs remain
Rung 3: 4 year CD – 3 yrs remain
Rung 4: 5 year CD – 4 yrs remain
Rung 5: 5 year CD – 5 yrs remain

Year 3:
Rung 1: 3 year CD – 1 yr remains
Rung 2: 4 year CD – 2 yrs remain
Rung 3: 5 year CD – 3 yrs remain
Rung 4: 5 year CD – 4 yrs remain
Rung 5: 5 year CD – 5 yrs remain


In a 5 year CD ladder, one-fifth of the total investment is available once each year. This gives the investor the option of rolling the CD over, or using the money if needed. It also helps smooth the investor’s return on investment over a long time period. If the rates are good (as they are now) it allows the investor to lock in favorable returns for a set amount of time, which savings accounts do not allow.

CD ladders do not have to be built on a 5 year pattern. Some people use CDs for their emergency funds and base it on a 12 month rolling schedule. This way, they know they will never be more than a few weeks away from access to at least some of their money.

CD ladders may not be the best investment for everyone, but if you have some cash in your savings account that you will probably not need for a set amount of time, then building a CD ladder may be a good way for you to lock in higher interest rates and earn more money than you would in a savings account.

If you are looking for a new bank where you can get competitive rates for your CD ladder, check out MoneyAisle, which uses an auction system to find the best rates for you. Check out my MoneyAisle review for more information

Published or updated August 26, 2010.
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{ 9 comments… read them below or add one }

1 lulu

If you have an ING account they make it very easy for you to set up a CD ladder.

You fund your ladder with money from your ING accounts and it does all the work for you.


2 Ryan

Hi lulu,

Thanks for the great info! I have ING, but my other bank actually had better rates, and that is where I do most of my banking. I set up a CD ladder last week and it only took me 5 minutes to set everything up. It was very easy! :)


3 Kyle

Good info, I am going to be investing some money in CDs at the end of the year so this will come in handy.


4 Ryan

Glad to help Kyle. Good luck with that. :)


5 Free From Broke

Years ago when I first opened my ING account I set up a 5-year CD ladder. I soon realized that because the rates were so low at the time that my savings rate was eclipsing my CD rates after a few months. Now I set up one year CD’s in a quarterly ladder (4 a year). I find this works out better to capture the best rates. Also, what’s nice about ING is that they tend to give you a rollover bonus when you re-invest a mature CD. I’ve even been able to add to the CD amount on a few occasions.


6 Ryan

Nice information, Free From Broke. It is very important to consider the current rates when you start a CD ladder, and had the rates not been where they are a couple weeks ago, my wife and I would not have built the CD ladder. But, the rates we got were between 4.91-5.16%, which we felt was good enough for us to lock into for several years. As with any investment, it is possible we may not get the best rate of return possible (rates could go through the roof like they did in the late 70’s, early 80’s), but then again, they could drop back down to 2-3% like they were a few years ago. We were comfortable at these rates, and I think we’ll be fine. Thanks for the comment. :)


7 Dividend Growth Investor

That’s an interesting article. You still keep flexibility in case rates go up with a 5-10 year ladder, yet you can adjust even if rates start dropping as well..


8 David Kinkade

When using a 5 year ladder how do you buy a 4 year CD. I have not seen any for sale.

Thank you


9 Ryan

David: Not all banks offer CDs for every time frame, but you can easily create a CD ladder if you are willing to get creative on your first purchase.

In year one, buy CDs of these time frames: two 1 year CDs, one 2 yr CD, one 3 yr CD, and a 5 yr CD.

In your second year (after your two 1 yr CDs expire), you will need to buy a 3 yr CD and a 5 year CD. This will put you on schedule for a 5 year CD ladder. Then, each year when your CD matures, you will need to buy a new 5 year CD.

Good luck!


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