CD Ladder: What It Is and How to Build One for Smart Savings

When it comes to growing your savings, finding a balance between earning good returns and maintaining access to your funds can be challenging.  

Traditional savings accounts provide flexible access to your funds but have low interest rates. Locking your funds in a Certificate of Deposit (CD) for a fixed term typically offers higher interest rates, albeit at the expense of liquidity. 

That’s where CD Ladders come in.  

Instead of tying all your money up in a single long-term CD, you can use the CD ladder strategy to divide it across multiple CDs with staggered maturity dates, ensuring that you always have a portion of your money available at regular intervals while earning competitive interest rates. 

Think of it like climbing a ladder—each step represents a maturing CD, giving you access to part of your funds while the rest continues to grow. 

In this post, we’ll explore what a CD ladder is, how to build one, and whether a traditional or monthly CD ladder is better for your financial goals. 

What is a CD Ladder? 

A CD ladder is a savings strategy that involves depositing in multiple CDs with different maturity dates. 

Instead of locking all your money into a single CD, you split it into several CDs with varying terms. 

For example, instead of putting $10,000 into a single 5-year CD, you might break it into five smaller CDs: 

• $2,000 in a 1-year CD
• $2,000 in a 2-year CD
• $2,000 in a 3-year CD
• $2,000 in a 4-year CD
• $2,000 in a 5-year CD

Each year, one CD matures, giving you access to a portion of your money while the rest continues to earn a higher interest rate. 

Why Use a CD Ladder? 

• Earns higher interest rates than regular savings accounts.
• Provides better liquidity than a single long-term CD since some funds are available at intervals.
• Reduces interest rate risk by spreading your funds across different terms.

How Does a CD Ladder Work? 

A CD ladder strategy is simple to set up. Here’s how it works step by step: 

• Choose your total savings amount – Decide how much you want to deposit in CDs.
• Select the term length of CDs - Typically, these range from a few months to 5 years.
• Deposit equal amounts into each CD – This allows you to have a balanced structure.
• When the shortest-term CD matures, you have the option to redeposit it into a new long-term CD – This keeps the ladder rolling.
• Repeat the process – As each CD matures, you can either cash it out or redeposit it in another long-term CD.

Benefits of Using a CD Ladder Strategy 

A CD ladder strategy offers several advantages over traditional savings methods: 

1. Higher Interest Rates

Longer-term CDs typically offer higher interest rates compared to shorter-term CDs. Laddering allows you to take advantage of those interest rates while keeping funds accessible upon maturity. 

2. Regular Access to Funds

You can withdraw all or a portion of the money each time a CD matures, if needed. This is especially useful if you anticipate needing cash in the future. 

3. Reduced Interest Rate Risk

If interest rates rise, short-term CDs will mature sooner, allowing you to redeposit at higher rates. 

4. Low-Risk Savings 

Unlike stocks or mutual funds, CDs offer a fixed return for a fixed term. 

How to Build a CD Ladder in 5 Steps 

Building a CD ladder uses a structured approach to build returns while keeping some level of liquidity.  

Here’s how you can make an effective CD ladder strategy in five steps: 

1. Decide Your Deposit Amount

Unlike a regular savings account, funds in CDs are locked in until maturity. 

That means you should only deposit in a CD money you won’t need immediately. Consider setting aside emergency funds separately before committing to the CD ladder, as penalties are usually assessed for early withdrawals.  

Most people begin with a total deposit amount ranging from a few thousand dollars to tens of thousands, depending on their savings goals. 

The key is ensuring you have enough funds to distribute across multiple CDs with different term lengths while maintaining financial flexibility. 

2. Choose CD Term Lengths

The next step is deciding how long each CD in your CD ladder strategy should last. A typical CD ladder consists of short-, medium-, and long-term CDs. 

Standard maturities range from a few months to 5 years. 

For example, if you’re depositing $10,000, you could break it down as follows: 

• $2,000 in a 6-month CD
• $2,000 in a 1-year CD
• $2,000 in a 2-year CD
• $2,000 in a 3-year CD
• $2,000 in a 5-year CD

Each time a CD matures, you can redeposit it into another long-term CD while keeping funds accessible at regular intervals. 

3. Open CDs at a Bank or Credit Union 

Once you’ve selected your term lengths, you will need to open CDs at a financial institution. 

Many banks and credit unions offer CDs, but it is wise to compare interest rates to seek higher returns. 

SBI California (SBIC) offers competitive CD rates, providing an excellent option for building a strong CD ladder strategy.

When opening CDs, confirm the following: 

• Interest rate and annual percentage yield (APY)
• Minimum opening deposit requirements
• Early withdrawal penalties
• FDIC insurance coverage

4. Options When CDs Mature 

When your shortest-term CD matures, you have two choices: withdraw the funds or redeposit them into a new long-term CD. 

You keep your CD ladder functioning by redepositing and earning higher interest rates over time. 

For example, when your 6-month CD matures, you can redeposit it into a 5-year CD. 

This way, your ladder remains in place, and you consistently have CDs maturing at regular intervals, providing a balance between liquidity and growth. 

5. Adjust Based on Interest Rates 

Interest rates fluctuate over time, and adjusting your CD ladder strategy accordingly can help you achieve higher returns. 

Interest rates fluctuate over time, so adjust your CD ladder strategy to optimize the returns. 

In a rising rate environment, short-term CDs give you the flexibility to reinvest money as the interest rate climbs higher.  

If the rates are falling, it’s wise to reinvest in longer-term CDs. This lets you lock in today’s higher rates before they fall further. 

Best Practices for Maximizing Your CD Ladder 

To get the most out of your CD ladder strategy, follow these best practices: 

1. Diversify Maturity Dates

Instead of placing all your money in long-term CDs, spread it across different maturities. 

This diversification ensures that you always have a portion of your savings available regularly. 

The more frequently a CD matures, the greater your flexibility in adapting to changing financial needs and interest rates. 

2. Redeposit Wisely

When a CD matures, you must decide if you want to withdraw the funds or redeposit them. If interest rates are high, opening a longer-term CD could lock in a better rate. 

If rates are low, you might consider a shorter-term CD to wait for better opportunities later. 

3. Use an FDIC-Insured Bank

Always ensure your CDs are placed in a financial institution that provides FDIC insurance. 

At a FDIC-insured institution, your deposits are insured $250,000 per depositor, per FDIC-insured bank, for each account ownership category. 

Monthly CD Ladder vs. Traditional CD Ladder: Which One Is Better? 

Choosing between a monthly CD ladder and a traditional CD ladder strategy depends on your financial goals and need for liquidity. 

Traditional CD Ladder 

A traditional CD ladder consists of CDs with staggered maturities spread over a few months to several years. 

You may start with 6-months, 1-year 2-year, 3-year, 4-year, and 5-year CDs, redepositing the shortest-term CD into a new long-term CD as each one matures. The benefits of CD laddering are: 

• Higher interest rates, as longer-term CDs offer better yields
• Predictable access to funds on an annual basis

However, you may have limited liquidity, as funds are tied up for a longer period compared to savings accounts or short-term CDs. 

Monthly CD Ladder

A monthly CD ladder involves buying CDs that mature every month rather than annually. This provides more frequent access to cash but may result in lower overall interest rates. 

• Increased liquidity, with access to funds every month
• Ideal for those who want short-term periodic payouts
• Lower yields compared to traditional ladders

Which One Is Right for You?

• If you prioritize higher returns and don’t need frequent access to funds, a traditional CD ladder is the better choice.
• A monthly CD ladder is more suitable if you need more liquidity and want access to money every month.

Who May Consider Laddering CDs? 

A CD ladder is a significant savings strategy for some savers. You may consider laddering CDs if you fit into any of the following categories: 

• Savers Looking for Better Interest Rates – CD rates are typically higher than standard savings accounts, and laddering helps grow returns without locking up all your money at once.
• Retirees Seeking Predictable Income – Many retirees use CD ladders to generate steady, low-risk interest income. CDs maturing at different intervals allow withdrawals without penalties, offering stability and some liquidity, which is essential in retirement.
•  A CD ladder strategy is ideal for savers seeking to preserve capital and earn interest without the risks of more volatile investments.
• Anyone Saving for Short or Long-Term Goals – Laddering CDs allows you to access a portion of your funds based on your plan, from saving for a home, education, or other expenses.

SBI California, Helping You Build a Strong CD Ladder 

At SBI California (SBIC), we offer CD options to help you implement a CD ladder strategy that works for you. 

Why Choose SBIC? 

• Competitive CD rates for both short and long-term CDs.
• Flexible options, including savings accounts and checking accounts for seniors.
• Safe deposit services, including safety deposit boxes, to store important documents.

How to Get Started with SBIC

• Explore our savings account options.
• Check our CD rates and terms.
• Learn how to open a bank account at SBIC today and register for a CD.

Wrapping Up

A CD ladder is a strategic way to grow your savings while maintaining access to funds at regular intervals. 

Whether you're looking for a monthly CD ladder for flexibility or a traditional ladder for higher returns, this strategy offers a good alternative to keeping all your money in a standard savings account. 

Ready to start laddering CDs?  

Explore your options with SBI California (SBIC) today.