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CD Laddering Explained: Lock in Rates Without Losing Flexibility

Updated
Joel O'Leary
Author: Joel O'Leary
Joel O'Leary
Joel O'Leary
Full Time Writer

Joel is a full-time writer at Motley Fool Money, where he brings a clear, approachable voice to topics ranging from credit cards to side hustles. He’s been writing about money since 2018, covering topics like credit cards, savings hacks, and the FIRE movement. Before joining the team, he managed editorial content for the How To Money podcast. When he’s not behind the laptop, Joel is likely at the beach surfing, or out and about with his family.

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Many or all of the products here are from our partners that compensate us. It’s how we make money. But our editorial integrity ensures that our product ratings are not influenced by compensation. APY = Annual Percentage Yield.

Most people think of certificates of deposit (CDs) as a one-and-done savings tool. You dump all your money into a CD, wait a year or two, then decide what to do next.

But CD laddering kicks things up a notch. It's a smarter way to lock in the best savings rates, while also maintaining access to your cash.

And I've even seen this work firsthand… A buddy of mine has a CD ladder set up for his $60,000 emergency fund. I'll explain how he set it up and other examples below.

What is a CD ladder?

Picture this: Instead of putting all your money into one big CD, you split it up into several smaller CDs. The goal is to stagger the CD term lengths, so that you regularly have portions of money maturing.

For example, instead of putting $20,000 into a 2-year CD, you instead buy four $5,000 CDs with 6, 12, 18 and 24-month terms. They call it laddering because each CD is like rungs on a ladder. It's taking a bunch of small steps, vs. one big one.

A real-life example

My buddy has a $60,000 emergency fund, which represents about 1-year of living expenses.

His theory is that if an emergency does happen (like losing his job) he probably won't need all of his $60,000 right away. So instead of keeping his emergency fund in a high-yield savings account, he built a CD ladder that will pay him $5,000 monthly.

Here's how he set it up:

  • He divided his $60,000 into 12 equal parts of $5,000 each.
  • On a rolling monthly basis, he purchased 12 CDs, one per month.
  • Month 1 he put $5,000 into a 1-year CD.
  • Month 2 he put another $5,000 into a 1-year CD
  • Month 3, 4, 5+ he did the same, until 12 months had passed and he had $60,000 across 12 CDs.
  • Now each month, one CD matures, and he simply rolls it into a new 12-month CD at whatever the current rate is.

This setup gives him full annual access to each portion of his money while keeping the majority of his savings locked into the best CD rates available.

It's kind of like building a monthly paycheck out of your savings. But with way better returns than a checking account or traditional savings.

Compare CD rates

Rates as of May 29, 2025
LendingClub CD

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Discover® Bank CD

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Member FDIC.
APY:
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Term:
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Western Alliance Bank CD

Western Alliance Bank CD

APY:
4.00%
Term:
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Min. Deposit:
$1
Open Account for

On Raisin's Secure Website.

Other types of CD ladders

You can build all kinds of CD ladders, depending on your savings goals and timeline. There's no one-size-fits-all.

Goal-based ladders

Let's say you're saving for a house down payment over the next five years. Instead of saving your cash in a checking account, you might build a ladder backwards -- buying a 5-year CD in year one, a 4-year CD in year two, and so on. That way, all your CDs mature around the same time -- when you're finally ready to buy.

Retirement income ladders

Retirees often use CD ladders to create predictable income while avoiding stock market risk. A common setup is to hold two to three years' worth of expenses in short-term CDs (say, 6-month to 2-year terms), maturing at regular intervals.

This way, your immediate cash needs are covered -- and the rest of your portfolio can stay invested for long-term growth.

Why CD laddering works

Here's why laddering CDs can be a better move than sticking with one CD:

Pros

  • Liquidity: You get periodic access to your funds as CDs mature.
  • Rate protection: If rates fall, your higher-yielding CDs are already locked in.
  • Simplicity: Once built, it runs itself with just a bit of reinvesting.

Cons

  • Interest rate risk: If rates rise quickly, older CDs might underperform.
  • Minimum deposit requirements: Some banks require $500 to $1,000 per CD. So laddering is more fit for those with larger cash amounts.
  • Early withdrawal penalties: This isn't just for ladders -- pretty much all CDs have penalties if you withdraw your money early (unless specifically stated as "no-penalty" CDs)

How to build your own CD ladder

Got a chunk of cash and want to build a custom ladder? Here's a step-by-step guide to get started:

1. Choose your ladder length

Most people build ladders with three to five terms. Here's a common setup:

CD Term Amount Invested
1 year $5,000
2 years $5,000
3 years $5,000
4 years $5,000
5 years $5,000
Data source: Author's input.

Total: $25,000 spread across five CDs.

This is just an example. You'll want to choose your own length and amounts to deposit.

Pro tip: Think into the future and choose based on when you want the money to become available to you again.

2. Pick a bank or credit union

Here are the things to look for when choosing who to work with:

  • Competitive APYs (especially on 1- to 5-year CDs)
  • Low or no penalties for early withdrawal (just in case)
  • FDIC or NCUA insurance

Ideally, you want all of your CDs with the same bank.

By the way -- Our experts have cut out a lot of legwork for you by vetting and rating more than 100 banks and financial institutions. Compare all the best CD rates available here.

3. Reinvest (or use the money) as each CD matures

Once your CDs begin maturing, you get to decide what to do with the money.

You can either roll it into a new CD, or use the cash for whatever goal you had set.

CD ladders vs. other savings options

If you're not sold on CDs, here are some alternatives and how they compare.

High-yield savings accounts (HYSAs)

An HYSA gives you easy access to your money and earns a competitive interest rate -- often close to what short-term CDs pay. The biggest difference is you can withdraw funds anytime without penalty, making it ideal for emergency funds or short-term goals.

Compare savings rates

Make sure you're getting the best account for you by comparing savings rates and promotions. Here are some of our favorite high-yield savings accounts to consider.

Account APY Promotion Next Steps
3.60%
Rate info Circle with letter I in it. 3.60% annual percentage yield as of June 4, 2025. Terms apply.
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Rate info Circle with letter I in it. SoFi members who enroll in SoFi Plus with Eligible Direct Deposit or by paying the SoFi Plus Subscription Fee every 30 days or SoFi members with $5,000 or more in Qualifying Deposits during the 30-Day Evaluation Period can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. Members without either SoFi Plus or Qualifying Deposits, during the 30-Day Evaluation Period will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. If you have satisfied Eligible Direct Deposit requirements for our highest APY but do not see 3.80% APY on your APY Details page the day after your Eligible Direct Deposit arrives, please contact us at 855-456-7634. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet. See the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.
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Money market accounts

Money market accounts blend features of savings and checking accounts -- you'll usually get a debit card or check-writing privileges. They tend to have slightly lower APYs than long-term CDs, but offer more flexibility if you need to move money around frequently.

Is a CD ladder right for you?

CD ladders are great for emergency funds, planned expenses (like tuition or home repairs), or simply diversifying your savings.

Here are a few situations when a CD ladder makes sense:

  • If you want slightly better returns than a standard savings account
  • If you won't need all the cash at once
  • You're OK with planning a bit ahead

Remember, you get to set up your ladder however you want. It doesn't need to be super complex!

The bottom line

CD laddering won't make you rich. It's just a way to store your cash savings and lock in the best available interest rates.

If you've been sitting on a chunk of cash and hate seeing it earn pennies, this might be your next smart move.

Ready to start your own ladder? Check out our top-rated CDs for 2025 to find the highest APYs and lowest minimums available today.

FAQs

  • Yep! CDs are FDIC insured up to $250,000 per depositor, per bank. Your money is well protected, even if the bank goes out of business.

  • No way, Jose. When a CD matures, you're free to do whatever you want with the money. You can cash it out, use it for a planned expense, or roll it into a new CD to keep the ladder going. It just depends on your goals at the time.

  • You can, but you'll likely pay an early withdrawal penalty if you close a CD early. This is actually the main reason ladders are beneficial. They give you access to portions of your cash periodically, while the rest remains invested and earning interest.