How CD Laddering Works

Learn how to build a CD ladder that can help you maximize your savings

When you're looking to earn a high rate of return on your savings, you're probably drawn to certificates of deposit, or CDs. CDs typically have stronger interest rates than traditional savings accounts and money market accounts. However, any money deposited in a CD has to stay there for the duration of the term, whether that's six months, 18 months or five years. If this reality has kept you from fully exploring the savings potential of CDs, look into CD laddering as a way to keep your money growing but still accessible.

What is CD laddering?

A CD ladder strategy refers to a series of CDs with terms of different lengths. That's why it's best visualized as the rungs on a ladder. You take your funds and disburse them across the rungs. CD laddering typically consists of one short-term CD, one long-term CD and a couple in between.

For example, let's say you have $10,000 you want to put into savings. You decide to create a CD ladder that puts $2,000 each into:

  • Six-month CD
  • One-year CD
  • Two-year CD
  • Three-year CD
  • Four-year CD

The CD laddering strategy in place here is to make sure your money is always accessible within one year. When your first CD matures, meaning the term ends, you can withdraw the money for use or reinvest it. Regardless, your one-year CD only has six months left on it now. When that CD expires, your two-year CD will only have one year left on it, and so on.

This rolling payout schedule is the primary benefit of CD laddering. Had you put your entire $10,000 into a five-year CD, you wouldn't be able to access it without paying a fee for a full five years. With a CD ladder, portions of your money become available fee-free at convenient intervals.

How do I determine a good CD laddering strategy for my situation?

There are many ways to approach building a CD ladder. The approach above is only one suggestion. You don't have to space CDs at regular intervals. Instead, you could choose just one with shorter terms and one long one.

If the three-year and five-year CDs have markedly better interest rates than those at other intervals, you could also choose to split your $10,000 into thirds and buy a:

  • One-year CD
  • Three-year CD
  • Five-year CD

No matter how you specifically structure it, a CD ladder will make money available to you sooner rather than later, which can give you peace of mind knowing you can access your money when you need to rather than wait several years to withdraw anything.

Part of your CD ladder strategy is also deciding what to do with the funds as each CD matures. It's always wise to build up your savings, so choosing to invest your money in a new CD is a great option. Continue the CD laddering effect by putting those funds into a CD that would be the highest rung (i.e., the longest term). So, if your longest-term CD was four years long, buy another four-year CD when your first one expires and the four-year CD now has fewer years left on it.

You could also choose to take your money from a mature CD and keep it for spending as a down payment for a house or car or to invest as you wish. This decision is entirely up to you and your financial situation.

Start building a CD ladder with Citizens Bank

Find competitive interest rates and minimum balance requirements that work for your needs at Citizens Bank. Explore your certificate of deposit options and then start your CD application. If you have questions about CD laddering or the CDs themselves, call a customer care representative at 1-877-360-2472.


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