What falling interest rates could mean for your CD ladder strategy
In recent years, certificates of deposit (CDs) have offered a rare advantage. That advantage may be coming to an end, requiring a change in approach. A CD ladder strategy may be the answer.
Since early 2023, 1-year CD rates have been higher than 5-year CD rates. Usually, long-term CD rates are higher than short-term CD rates, because they require bank customers to make a longer commitment. This means depositors can benefit from higher interest rates by choosing longer-term CDs.
The advantage this gave depositors is that it allowed them to get higher rates without locking up their money for a long time. However, with the Fed resuming its rate cuts – and with more cuts expected to be on the way – short-term rates may move back in line. That means they would generally be lower than long-term rates.
If this happens, a CD ladder strategy might become necessary for depositors to get a combination of higher yields without locking all their money up in a long-term CD.
What is a CD ladder strategy?
A CD ladder strategy involves dividing your investment among multiple CDs with staggered maturity dates.
CD ladder strategy – definition and basic concept
Imagine a series of dates from the near future to five years from now. Those dates would be at regular intervals, like rungs on a ladder.
The reason for investing in a CD ladder is that longer-term CDs generally provide higher yields, but they require locking up your money for years. Shorter-term CDs allow you to access your money sooner, but they don’t usually pay as much interest.
CD laddering can allow you to get some of the higher yields that normally come with long-term CDs, while also getting access to some of your money at regular intervals. A CD ladder is a disciplined savings strategy that balances earning higher interest with maintaining liquidity through staggered maturities.
How CD ladders work
Here’s a basic example of how a CD ladder might work. Suppose you have $5,000 to invest. Instead of putting it all in one CD, you spread that money across a series of CDs of different lengths:
| Amount invested | CD term | CD yield |
|---|---|---|
| $1,000 | 1 year | 1.00% |
| $1,000 | 2 years | 1.20% |
| $1,000 | 3 years | 1.40% |
| $1,000 | 4 years | 1.60% |
| $1,000 | 5 years | 1.80% |
This example is based on the normal historical relationship between short and long-term CDs, in which longer-term CDs have higher yields. In this case, those CD ladder interest rates range from 1.00% to 1.80%. By spreading your money across these different CDs, you’d have an average yield of 1.40%.
That’s the equivalent of the yield on a 3-year CD. However, in this case, rather than having all your money locked up for three years, you’d have a CD maturing each year. That way, some of your money would be available at yearly intervals for spending needs or to reinvest.
What are the benefits of a CD ladder?
The above is just one example of a CD ladder. A CD ladder offers a strategic way to balance higher yields with liquidity by staggering multiple CDs with different maturity dates. There are also other ways to use a CD ladder to your advantage.
Is laddering CDs a good strategy?
A CD ladder can also be used to provide liquidity for specific needs in the future. For example, suppose you have to pay $4,000 a year in property tax on your home. You’re also hoping to take a vacation in a couple of years that will set you back $5,000. In that case, you might set up a CD ladder to look like this:
| Amount invested | CD term |
|---|---|
| $4,000 | 1 year |
| $9,000 | 2 years |
| $4,000 | 3 years |
| $4,000 | 4 years |
| $4,000 | 5 years |
This way, you’d have enough money becoming available each year to pay your property tax bill, plus the extra money you’ll need for that vacation in a couple of years. With this approach, you benefit from regular access to your funds as each CD matures, providing flexibility without sacrificing higher interest rates.
So, you can set up a CD ladder for general use or you can tailor a CD to meet anticipated spending needs.
When CD ladders work best
Unless you have specific spending needs, the best CD ladder strategy is one you keep in place for the long term. This way, you can have a series of long-term CDs with different maturity dates. In a normal interest rate environment, that could give you the highest yields while still having regular liquidity.
For example, suppose you initially set up a CD ladder with a series of CDs ranging from one to five years. At the end of the first year, your 1-year CD would mature. How do you reinvest the proceeds?
In this case, you wouldn’t simply replace it with a new 1-year CD, because at that point, your original 2-year CD would have just a year left until it matures. On the other hand, your original 5-year CD would now have just four years left. So, you’d reinvest the maturing 1-year CD in a new 5-year CD.
That would once again give you a CD ladder with CDs maturing at the end of each of the next five years. If you keep investing maturing CDs in new 5-year CDs, you’d eventually have a series of 5-year CDs maturing at one-year intervals. Building a CD ladder involves continually reinvesting each maturing CD into a new long-term CD to maintain the ladder structure and ensure ongoing regular liquidity with maximum yields.
Rates Updated on September 18, 2025
How to create a CD ladder
CD laddering strategies can be used to achieve a variety of goals. To build a CD ladder, start by deciding what you want the CD ladder to achieve.
It might be simply to provide liquidity at regular intervals. Or, you may want to tailor the ladder to your specific future cash flow needs. You can open multiple CDs with different terms to ensure that funds become available at the times you need them.
In other cases, you may want to take advantage of interest rate conditions and how you expect them to change.
When funding your ladder, consider the initial deposit you have available and the minimum deposit required for each CD, as these will determine how many CDs you can open and the structure of your ladder.
Whatever your goals, you should look at current CD rates and, based on those rates and your goals, structure a CD ladder using multiple certificates that make the best use of available CDs for your needs.
Types of CD ladder strategies for different goals
Below are some examples of how you might find the best CD ladder strategy for your goals. The traditional CD ladder is the standard approach, where you stagger CDs with increasing maturity dates—typically from one to five years—to balance liquidity and returns, but there are other options.
Interest rate hedge CD ladder
Interest rates move up and down over time. By mixing short and long-term CDs, CD ladders provide a basic hedge against interest rate changes going against you. This strategy helps manage interest rate risk by allowing you to reinvest at different times, either locking in current rates or taking advantage of higher rates as they become available. You can also adjust your CD ladder if you have a specific expectation or concern about where interest rates may go next.
For example, if you think interest rates are likely to rise, you may want to put more money in shorter-term CDs, with smaller investments in the longer-term part of your ladder. That way, more of your money will mature in the near future, so you can reinvest it sooner as rates rise.
On the other hand, if you’re concerned about interest rates dropping, you could take the opposite approach. You could make heavier investments in the longer portions of your CD ladder. This way, you’d still have some short-term liquidity, but more of your money would lock up today’s yields for longer periods. That way, you could delay having to reinvest that money at falling rates.
Targeted cash flow CD ladder
Earlier, this article described an example of a CD ladder structured to meet annual property tax payments plus pay for a vacation in two years. By thinking ahead about major expenses you’ll face in the next few years, you can structure a CD ladder geared to your needs and aligned with your financial goals.
The advantage of this is that CDs generally have a rate advantage over savings or checking accounts. So, by investing in CDs that don’t mature until you need them, you’ll be able to earn more money while you’re waiting to spend it.
Short and long-term CD ladder strategies
Banks generally offer CD terms ranging from a few months to five years, but that doesn’t mean that all CD ladders have to cover five-year periods. A few banks may offer CD terms greater than five years, making longer CD ladders possible. When building a CD ladder, you typically invest in several CDs with different terms to balance liquidity and returns.
On the other hand, if your cash flow needs are concentrated within a shorter time period, you could opt for a mini CD ladder. For example, a mini CD ladder might look like this, using short-term CDs to provide more frequent access to your funds:
| Amount invested | CD term |
|---|---|
| $1,000 | 3 months |
| $1,000 | 6 months |
| $1,000 | 9 months |
| $1,000 | 1 year |
| $1,000 | 18 months |
| $1,000 | 2 years |
That would allow you to meet a series of cash flow needs within the next couple of years, while earning yields in excess of savings account rates.
For those seeking higher long-term returns, a CD ladder can also be built using a 5-year CD as the longest rung. As each CD matures, you can roll the proceeds into new 5-year CDs, maintaining a steady ladder of 5-year CDs for stable, predictable returns.
CD ladder calculator: Projecting your returns
A CD calculator can calculate how much money you’ll earn on a CD, given the length of its term, interest rate, and the amount of money you invest. This can be useful for putting together CD ladders for specific cash flow needs.
How much will a $10,000 CD make in one year?
Suppose you invest $10,000 in a 1-year CD with a yield of 2.25%. How much will this CD be worth when it matures?
If you enter those parameters into a CD calculator, you should find that it would earn you $225 in interest in one year. So, that $10,000 CD would be worth $10,225 when it matures.
Using CD rate calculators for ladder planning
This can be helpful when you’re creating a CD ladder to meet future cash flow needs. When you’re planning for those needs, what matters most is not what you put into a CD, but what you’ll get out of it when the time comes.
For example, suppose you’re going to need $6,000 in five years. You find a 5-year CD with an annual yield of 3.50%. Working with a CD calculator, you could see that it would take an investment of $5,052 to earn enough interest for the CD to be worth $6,000 in five years at a 3.50% annual return.
That way, you’d know how much to put in your CD ladder for that length of time to be able to meet your $6,000 goal in five years.
CD ladder strategy vs. alternatives
CD ladders are not the only way to meet future cash flow needs. Other investments, such as stocks, bonds, or mutual funds, can also be considered as alternatives depending on your risk tolerance and financial goals.
When comparing CDs to other savings options, it’s important to consider money market accounts and money market funds. Money market accounts offer a low-risk, high-yield savings vehicle with greater liquidity than CDs, allowing easier access to your funds while still earning competitive interest rates. Money market options can be a versatile and secure way to grow your savings alongside traditional savings accounts and CDs.
Bond ladders are another popular strategy. Unlike CDs, bonds can often be sold on the secondary market before maturity, providing additional liquidity and the potential for gains or losses depending on market conditions.
CD ladder vs. bond ladder
You could buy bonds instead of CDs to put together the same kind of ladder. Like CDs, bonds have specific maturity dates and pay interest.
To buy bonds, you’d need a brokerage account. You should also be sure you’re comfortable with the terminology involved in trading bonds.
U.S. Treasury bonds are guaranteed by the U.S. government. That gives you the same degree of safety as an FDIC-insured CD. One advantage of Treasury bonds is that this guarantee is not limited to $250,000, the way FDIC insurance is.
Treasury bond yields are often higher than most CD yields for similar lengths of time. You may find higher yields in bonds offered by private corporations or other entities. However, these are considerably more risky.
One other advantage of a bond ladder is that Treasury bonds are available in yields up to 30 years. So, if you want to plan for cash flow needs that are further into the future than CD terms, Treasury bonds might be a useful tool.
CD ladder vs. high-yield savings account
Instead of using CDs to provide liquidity at regular intervals, you could put your money into a high-yield savings account. This is a great option for building an emergency fund, as it provides easy access to cash in case of unexpected expenses.
Savings accounts allow you to access your money at any time. Like CDs, savings accounts at FDIC-member institutions are covered by FDIC deposit insurance.
However, when it comes to planning for future needs, savings accounts have two disadvantages to a CD ladder:
- Savings accounts typically pay lower interest rates than most CDs
- Savings account rates are subject to change at any time, making it more difficult to plan for the future
A CD ladder can help you save money by earning more interest than a regular savings account, making it a smart strategy for maximizing your savings.
Challenges and solutions in CD ladder management
Here are two key challenges to be aware of when dealing with CD ladders:
- Early withdrawal penalties. CDs typically charge a penalty if you take money out before the maturity date, and these early withdrawals can significantly reduce your returns. You should be sure of what cash flow needs you have coming up before you commit money to a CD. You should also check what the early withdrawal penalty is. If you find two CDs with similar yields for the same length of time, you might want to choose the one with the lower penalty.
- Dealing with changing interest rate environments. CD rates are locked in for the length of the CD, but this doesn’t completely protect you from changing interest rates. If rates fall, you may have to reinvest your shorter-term CDs at lower rates. If CD rates rise, your longer-term CDs may be locked in at lower rates. As noted previously, though, there are ways you can put together a CD ladder to account for these risks.
When a CD matures, you typically have a window of about one week to 10 days to withdraw funds without penalty before the CD account may automatically renew. Managing your CD account carefully can help you avoid penalties and maximize your returns.
Expert tips for maximizing your CD ladder strategy
Some final tips on structuring a CD ladder:
- Optimize your CD selection by shopping around for the best rates. Compare rates across different financial institutions, including banks and credit unions, to maximize your returns. Choosing the right financial institutions for your needs can help you build a more effective CD ladder. When shopping for rates, remember that it is possible to put together a CD ladder with products from more than one bank.
- Understand deposit insurance and program banks. The Federal Deposit Insurance Corporation (FDIC) insures CD deposits at member banks up to applicable limits, protecting your funds. If you use a brokerage account, your cash may be allocated among multiple program banks through a sweep program, which can help extend FDIC insurance coverage. Always verify the insurance status and limits for each account.
- You’ll have to maintain and adjust your CD ladder as your CDs mature and as conditions change. Banks will often automatically roll a maturing CD over into a CD of similar length unless you instruct them otherwise. If you’re going to need the money, be sure you don’t let it roll over into a new CD. Also, when a CD matures, you may want to roll it into a CD of a different length to adjust your ladder to current conditions.
- Consult professionals. Consider speaking with a tax professional to understand the tax implications of your CD ladder strategy, and a financial advisor to help optimize your investment approach based on your overall financial goals.
Conclusion – putting your CD ladder in place
To get a start on putting your CD ladder in place, decide on the CD lengths and amounts that will suit your needs. Then do some comparison shopping to find the CDs with the best rates.
With the possibility of interest rates falling, setting up a CD ladder is a way of locking in today’s rates for a longer time, while still providing liquidity when you need it. Having liquidity in your CD ladder is especially important for covering unexpected expenses that may arise.
A CD ladder also helps you avoid putting all your eggs in one basket, offering diversification and reducing risk by spreading your savings across different maturity dates.
