CD Ladder Strategy: How to Build One and Why It Works

A CD ladder is one of the more elegant strategies in personal finance: you lock in higher interest rates on certificates of deposit while ensuring regular access to portions of your money. It combines the higher yields of long-term CDs with the liquidity of short-term savings — without completely sacrificing one for the other.

If you have a chunk of money sitting in savings that you won't need all at once but want to earn more than a savings account provides, a CD ladder is worth understanding.

What Is a Certificate of Deposit (CD)?

A certificate of deposit (CD) is a type of deposit account where you agree to keep your money with the bank for a fixed period — commonly 3 months, 6 months, 1 year, 2 years, or 5 years — in exchange for a guaranteed interest rate. The longer the term, the higher the rate banks typically offer.

The trade-off: if you withdraw money before the CD matures, you pay an early withdrawal penalty (usually 3-6 months of interest). This is why CDs work best for money you won't need for the full term.

In 2026, CD rates at online banks and credit unions can range from 4-5.5% APY depending on the term and institution — competitive with high-yield savings accounts but with a guaranteed fixed rate.

What Is a CD Ladder?

Instead of putting all your money into a single long-term CD, a CD ladder splits your money into equal portions across multiple CDs with different maturity dates. As each CD matures, you either use that money or roll it into a new long-term CD.

Classic example: 5-year CD ladder

Say you have $25,000 to ladder. You split it into five $5,000 CDs:

Each year, one CD matures and you receive the principal plus interest. You then roll that money into a new 5-year CD. After the initial 5-year setup period, you have a 5-year CD maturing every year indefinitely — giving you both the higher rate of 5-year CDs and annual access to a portion of your funds.

Why CD Ladders Work

Higher rates than short-term savings. Long-term CDs often pay more than high-yield savings accounts. If savings accounts pay 4.5% and 5-year CDs pay 5.5%, locking in the higher rate with a ladder is meaningful over time.

Regular access to funds. Instead of waiting 5 years to access your money, a ladder gives you access to a portion every year (or every quarter, depending on how you build it).

Protection against falling rates. If interest rates drop, long-term CDs locked in at higher rates look very attractive. The ladder lets you benefit from current high rates without betting your entire savings on where rates will be in the future.

Forced savings discipline. The early withdrawal penalty creates friction that discourages spending money you've committed to saving.

Building a CD Ladder: Step by Step

Step 1: Decide Your Ladder Structure

Choose the term length and number of rungs based on your timeline and liquidity needs.

Short-term ladder (12 months): Split money into 4 CDs with maturities at 3, 6, 9, and 12 months. Roll each into a 12-month CD when it matures. You have access to money every 3 months. Good for semi-liquid savings you might need within a year.

Medium-term ladder (3 years): Three CDs maturing at 1, 2, and 3 years. Roll each into a 3-year CD when mature. Annual access.

Long-term ladder (5 years): Five CDs maturing at 1, 2, 3, 4, and 5 years. Roll into 5-year CDs. Annual access, maximum rates.

Step 2: Choose Your Institution

Online banks typically offer the best CD rates:

• Ally Bank — competitive rates, transparent terms, no-penalty CD options
• Marcus by Goldman Sachs — consistently strong rates
• Capital One — good rates, well-known brand
• Bread Financial — often among the highest CD rates

Credit unions sometimes beat online banks on specific terms. Check with local credit unions.

Use a comparison site like NerdWallet or Bankrate to see current CD rates side by side before opening accounts.

Step 3: Compare Terms Carefully

Key things to check before opening a CD:

Early withdrawal penalty: How much do you forfeit if you need the money early? Typical penalties are 60-150 days of interest for 1-year CDs and 150-180 days for longer terms. This affects whether a CD is worth it over a HYSA for shorter horizons.

Auto-renewal policy: Most CDs automatically roll over into a new CD at maturity. You typically have a 7-10 day grace period to withdraw or make changes without penalty. Know this window so you don't miss it.

FDIC/NCUA insurance: Standard $250,000 per depositor, per bank. If your CD ladder exceeds this at one institution, spread across multiple banks.

Step 4: Open the CDs

Open CDs at your chosen institution(s). Many banks let you open multiple CDs from the same account. Fund each CD from your savings account.

Keep a simple tracking document: institution, CD amount, interest rate, maturity date. Set calendar reminders 2 weeks before each maturity date.

Step 5: Manage Maturities

When a CD matures:

• During the grace period (usually 7-10 days), decide whether to roll the full amount into a new long-term CD, withdraw some or all, or leave in the grace-period account temporarily
• If rolling over, the new CD should be the longest term in your ladder structure (5 years if you're running a 5-year ladder)
• If you need the money, withdraw it penalty-free during the grace period

No-Penalty CDs: A Hybrid Option

Many banks offer "no-penalty" or "liquid" CDs — you earn a higher rate than a savings account but can withdraw after a brief initial period (typically 6-7 days) without penalty.

Ally Bank's No Penalty CD, for example, offers a rate between their savings account and traditional CD rates, with the ability to withdraw at any time after 6 days. This gives you a rate boost with near-savings-account liquidity.

No-penalty CDs work well as part of a conservative cash strategy or as an alternative to a savings account for money you're fairly sure you won't need but want flexibility on.

When a CD Ladder Makes Sense

CD ladders are appropriate when:

• You have money you won't need for at least 12 months — short-term money belongs in a HYSA
• You want to lock in current rates — if you believe interest rates might fall, locking into higher long-term CD rates makes sense
• You're risk-averse — CDs are FDIC insured and guaranteed returns, unlike any investment
• You have more than 3-6 months of emergency fund saved — the emergency fund stays fully liquid in a HYSA; excess savings can be laddered

When a CD Ladder Doesn't Make Sense

• For money less than 1-2 years from being needed — the early withdrawal penalty risk isn't worth it for very short horizons. Use a HYSA.
• For your emergency fund — emergency funds must be fully accessible, not tied to a maturity schedule
• For long-term wealth building (5+ year horizon) — for money you won't need for 5+ years, the stock market's historical returns (7-10% annually) significantly outperform even the best CD rates over time. Invest in index funds, not CDs, for long-term goals.
• When HYSA rates equal or exceed CD rates — this sometimes happens when rate cuts are anticipated. Compare current rates before committing.

Tax Considerations

CD interest is taxable in the year it's earned, not when the CD matures (for CDs longer than one year, you may owe taxes on interest before you receive it). Factor this into your calculations if you're in a higher tax bracket.

For tax-advantaged accounts (Roth IRA, traditional IRA), you can hold CDs without triggering annual taxable events. Some IRA providers allow CD investments within the IRA — check with your provider.

The Bottom Line

A CD ladder is a smart, conservative strategy for money you want to earn more on without taking investment risk. It's particularly valuable in environments where long-term CD rates meaningfully exceed savings account rates.

Build your first ladder in an afternoon: decide your structure, compare rates at Ally, Marcus, or your credit union, open the CDs, and set calendar reminders for maturities. Once established, a CD ladder practically manages itself — a rung matures each year, you roll it over, and your money quietly earns more than it would in a savings account.

For money beyond your emergency fund that you won't need for 1-5 years, a CD ladder is one of the best low-risk options available.