How to Use a CD Ladder

Katie DuncanOctober 21, 2022


Cartoon ladder being climbed

Getting the most from your CDs can require strategy. One of the most popular game plans involves choosing multiple CDs with staggered maturity dates — a method known as laddering.

Because CDs remain the highest-yielding government-insured tool available for generating interest, the CD laddering method can offer you guaranteed returns and peace of mind knowing that your investment isn’t going anywhere. Particularly popular in bear markets, laddering can be ideal if you’re hesitant to tie up your money in long-term investments.

In this article, we’ll break down CD laddering and how to achieve the best results with this strategy.

What is a CD ladder?

You’re probably familiar with the old saying, “Don’t put all of your eggs in one basket.” Laddering allows you to spread your eggs among multiple baskets, or, in this case, CDs. The result is a combination of flexibility, liquidity, and maximized returns.

If you were to choose to invest your money in only one CD, you’d have two main options:

  • A long-term CD: Long-term CDs have higher interest rates. The downside is that you will be unable to access your money (without facing a penalty) for a long period of time.
  • A short-term CD: When you invest in a short-term CD, your investment reaches maturity sooner. The downside is that short-term CDs have lower interest rates.

Both of these options have a big advantage— and a big drawback.

The basic idea behind a CD ladder is that you spread your money among different CDs so that you always have some money coming due, all while maximizing your interest earnings. This way, you can take advantage of higher interest rates when they are available, and still have access to some of your money if you need it.

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If you’re ready to regain a little savings confidence, then use the link below to open a high-yield certificate of deposit with Amplify Credit Union.

How to Build a CD Ladder

Like most financial strategies, building a personalized CD ladder strategy starts with assessing your needs and financial situation. Start by considering the following factors.

  • How much you want to earn on your investment: What are your growth goals? Are you just hoping to hedge against inflation, do you have a specific number in mind, or are you just hoping to maximize returns?
  • When will you need your money: Money in a CD typically can’t be accessed without paying a penalty until it’s reached maturity. Consider when you’d like to access your funds, the liquid cash you’ll need during the life of the certificates, and the amount you can afford to have unavailable for the long term.
  • The likelihood of rising interest rates: While you are guaranteed your interest rate after you’ve opened a certificate of deposit, the interest rates that institutions offer fluctuate over time.

Once you understand your needs and goals, you can begin looking at your options. Ideally, you’ll look for the highest-earning CD for each term. Keep in mind that not all of your CDs need to be opened at the same institution. Some places may offer great short-term rates, but lower long-term CD rates.

Be sure that you also know the minimum deposit amount, as well as the CD’s terms and conditions. Keep a careful lookout for fees that may eat into your profits, rendering your CD a poor investment.

(Pro tip: Amplify has gone fee-free on all deposit accounts— including CDs!)

CD Laddering Examples

Here are some ways that you can ladder your CDs to achieve different goals.

Building a Safety Net

In a scenario where you are looking for a wide safety net for your portfolio, you might divide a chunk of money into five certificates maturing at increasingly longer intervals. This is a good strategy if you don’t need immediate access to your savings money within the next year.

For example, you could split $10,000 into five $2,000 CDs that mature at increasingly better interest rates in 12 months, 24 months, 36 months, 48 months, and 60 months, respectively.

At the end of the first year, you would re-invest the 12-month proceeds into another 60-month certificate with better interest; after that, one of your certificates matures each year, allowing you the freedom to buy more certificates or place your money in a different kind of investment.

Laddering Your Emergency Fund

Using the same tactic that we described above, you can also ladder your emergency fund so that you have a CD maturing every month. This could potentially provide you with a steady stream of money for a year should your income be disrupted for whatever reason.

This method of laddering will require a little extra work, as you will need to open twelve— yes, 12— CDs in three batches. Here’s how you could invest $12,000.

  • Month one: Deposit $1,000 into a 3-month, 6-month, 9-month, and 12-month CD each.
  • Month two: Again, deposit $1,000 into new 3-month, 6-month, 9-month, and 12-month CDs. (Your first month’s CDs are now 2 months, 5 months, 8 months, and 11 months away from maturity.)
  • Month three: Doing the same things as the previous two months, you’ll deposit $1,000 into new 3-month, 6-month, 9-month, and 12-month CDs.

Once you’ve made all of your deposits, you’ll have 12 CDs with $1,000 each. By the end of month three, your first CD will be at maturity, with a new one reaching maturity each month after that.

This is also where the real growth begins. You can reinvest each month into a 12-month CD, meaning that you’ll get higher interest rates and a CD reaching maturity each month.

Diversifying Your Savings Portfolio

CDs represent a sure thing when it comes to ROI— there’s no need to guess how the market will perform or if you’ll risk losing money in a crash. Having more frequent access to your funds through laddering can help you budget more accurately and save you from any early withdrawal financial penalties caused by unforeseen circumstances.

At Amplify Credit Union, you can buy such certificates for as little as $500 with no monthly fees, and the certificate interest is compounded and deposited quarterly. Start your CD ladder today!

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Katie Duncan

Katie Duncan is a financial writer based in Austin, Texas. Her articles include financial advice for freelancers, homebuyers, and more. When she’s not writing, Katie loves traveling and exploring the outdoors with her friends and her dog, Poe.