Laddering Strategies for CDs

Laddering Strategies for CDs

The interest rates offered on savings accounts and money market accounts today are hardly impressive. The FDIC's weekly national rate and rate caps as of end of December 2023 found the average national rate for a non-Jumbo deposit was just 0.46%, with a cap of 6.08%.

Fortunately, consumers have other options if they want to save their money in safe, risk-free investment vehicles. Certificates of deposit, better known as CDs, for instance, offer better interest rates. Credit unions might refer to them as Certificate Accounts. There's a catch with CDs, however. You must invest the money for a set period, known as a term. If you withdraw that money before it matures at the end of the term -- you'll face a penalty.

CD terms do not have to be long. Banks and credit unions offer CDs in a variety of terms. So you can select a CD that will mature in three, six or nine months if that meets your need. Alternatively, you can opt for a longer term, as long as 60 months or five years in some cases. In most cases, the longer the CD term, the higher the offered interest rate on that CD.

However, what if you want the higher interest rates associated with CDs, but you also want easier access to your cash? You can achieve this with an investment strategy known as laddering.

How Laddering Works

With laddering, you take out several CDs, all with different terms. Ideally, you want your CDs to reach maturity at regular intervals. That gives you the choice at each maturation date to either withdraw funds, renew them for a new term or withdraw some and re-invest the rest.

Here's an example: You might invest some of your dollars in a CD with a longer term, maybe as long 60 months. That CD comes with the highest interest rate possible. Next, you can invest more dollars in a CD with a slightly shorter term, say 48 months. Also open CDs with terms of 36 months, 24 months and 12 months.

You can see that you've laddered your CDs. A new CD will reach maturity every year. Moreover, here's what you do when that happens.

When your first CD matures after 12 months -- the CD that will pay the lower interest because of its short lifespan -- you can take out what money you need for expenses, purchases or other investments. Leave the rest of your dollars in it and then renew that amount into a 60 month CD.

What just happened? You gained access to the cash you needed and transformed the CD into a longer-term CD earning more interest.

One year later, your second CD -- the one with an original term of 24 months -- matures. Again, you can decide to withdraw all your money, renew all of it or keep some and save the rest. If you are laddering, you should only withdraw some of your money and then save the rest for 60 months. Again, you've gained access to your money and transformed a low-yield CD into one that pays off far higher interest rates.

As you can see, this scenario will play out every year. Each year, one of your CDs will mature, allowing you easy, and penalty-free, access to your cash. At the same time, the money you do not need will be generating higher amounts of interest.

You can ladder at shorter intervals and with fewer CDs, too. There's no reason you could not ladder CDs by investing in CDs with terms of 6, 9 and 12 months, and then renew these CDs as they mature.


If done right, laddering comes with few risks. However, you could break the chain if you are not patient. It might be tempting three years into your laddering arrangement to empty one of your CDs. You will not face a financial penalty for doing so. However, you will leave a year-long gap in your cycle of maturing CDs.

It is important to note that despite interest rates that are higher than those associated with savings accounts or money market accounts, CDs are still not one of the higher-yield investments out there. If you want to make more money at a faster clip, you'll need to invest in more aggressive, but riskier, investment vehicles.

Still, for those who prefer a safe and steady investment, CD laddering might be a smart move. It is a clever way to maximize both the accessibility and interest-generating powers of your CDs.