3 Reasons to Create a CD Ladder Today

If you're torn between the flexibility of savings accounts or short-term CDs and the yield stability of long-term CDs, a CD ladder could be a smart savings strategy for you.

If you aren't familiar, the basic idea behind a CD ladder is to divide your money into equal baskets, and deposit them into CDs of different maturity lengths. For example, if you have $20,000 in savings, you might split it into five baskets of $4,000, depositing $4,000 into a one-year CD, $4,000 into a two-year CD, and so on.

By doing this, you'll have one-fifth of your money maturing every year so it isn't completely tied up for the long term, but you'll also lock in longer-term fixed yields with most of your savings. As your shorter-term CDs mature, you can roll the money into a new longer-term CD to take advantage of the current long-term CD yields.

With that in mind, here are three reasons you might want to use your savings to create a CD ladder today.

Our Picks for the Best High-Yield Savings Accounts of 2024

Product	APY	Min. to Earn
American Express® High Yield Savings Member FDIC. APY 3.90% Rate info 3.90% annual percentage yield as of December 9, 2024. Terms apply. Min. to earn $0 Open Account for American Express® High Yield Savings On American Express's Secure Website. Member FDIC.	3.90% Rate info 3.90% annual percentage yield as of December 9, 2024. Terms apply.	$0	Open Account for American Express® High Yield Savings On American Express's Secure Website.
Capital One 360 Performance Savings Member FDIC. APY 3.80% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening. Min. to earn $0 Open Account for Capital One 360 Performance Savings On Capital One's Secure Website. Member FDIC.	3.80% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening.	$0	Open Account for Capital One 360 Performance Savings On Capital One's Secure Website.
Western Alliance Bank High-Yield Savings Premier Member FDIC. APY 4.46% Rate info The annual percentage yield (APY) is accurate as of November 7, 2024 and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY. Min. to earn $500 to open, $0.01 for max APY Open Account for Western Alliance Bank High-Yield Savings Premier On Western Alliance Bank's Secure Website. Member FDIC.	4.46% Rate info The annual percentage yield (APY) is accurate as of November 7, 2024 and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY.	$500 to open, $0.01 for max APY	Open Account for Western Alliance Bank High-Yield Savings Premier On Western Alliance Bank's Secure Website.

1. Create a reliable income stream

Savings accounts can have excellent yields, especially in the current environment, but they aren't guaranteed for any length of time. For this reason, savings accounts make lousy income investments.

On the other hand, a CD ladder could be an excellent way to create an income stream. Many (but not all) banks give you the option to withdraw interest payments as they come into the account, so if your bank allows this, a CD ladder could be a smart way to create a steady income stream without much risk.

2. Maintain flexibility if rates rise

In normal interest rate environments, longer-maturity CDs tend to have higher yields than shorter-term CDs. Of course, with the rapidly rising rate environment of 2022 and 2023, shorter-term CDs generally pay a little more than longer-term CDs, but one of the benefits over time is that some of your money will be available to roll into longer-term CDs every year or so.

On the other hand, you also have the flexibility to roll the maturing CDs into whatever makes the most financial sense at the time.

For example, let's say you created a CD ladder one year ago and your one-year CD is now maturing. Because the best yields as of this writing can be found in shorter-term CDs, you have the option to roll that money into a new one-year CD if you choose to do so.

3. Plan future access to your money

Not only does a CD ladder give you the flexibility to take advantage of rising interest rates as your money matures, it also gives you regular access to some of your savings if you need it to cover large purchases or living expenses. For example, a CD ladder could be a smart tool to use if you want to lock in high yields but have a large expense -- say, college tuition -- coming up at regular intervals.

There are drawbacks to CD ladders as well

Finally, it's worth mentioning that just like most financial products and strategies, CD ladders aren't perfect, and they aren't right for everyone. Specifically, it's impossible to predict interest rates with any degree of accuracy and a CD ladder might not always be the best overall yield.

For example, you can get the best yield right now by using shorter-term CDs, and if rates continue to rise, you'd be better off with all of your money maturing within a year and then putting it into higher-rate CDs. However, there's also the possibility that rates could collapse over the next year and you'll be out of luck when your accounts reach maturity.

The bottom line is that CD ladders are an excellent combination of maximum locked-in yield and flexibility with your money. If that sounds like it could fit your goals, a CD ladder could be the right move for you.