Start a CD Ladder for Longer-Term Savings

Earn higher interest rates and keep your money close

An illustration depicting people taking on a variety of personal finance tasks.

The Balance

Certificates of deposit, or CDs, are a savings account alternative you can use to grow your money and achieve longer-term financial goals. Building a CD ladder is something you might consider if you want to keep your longer-term savings accessible while earning varying interest rates on your deposits. 

Why You Need a CD Ladder

CDs are time deposit accounts. When you open a CD, you agree to keep your funds in that account for a specific period of time, which ends on a “maturity date.” Some banks and credit unions offer CDs with terms as short as 30 days and as long as 10 years. During that term, your money earns interest. Depending on the CD, you might be able to earn a better rate than you could with a savings account

Building a CD ladder involves opening multiple CDs with varying terms and different interest rates. This strategy can help you take advantage of changing interest rates over time. As each CD matures, you can decide whether to withdraw your savings or roll your money over into a new CD. 

Action To Take: Build a CD Ladder

Building a CD ladder starts with deciding how much money you have to save and when you think you’ll need access to it. These factors will help you determine the length of the ladder and the number of rungs it will have.

For example, say you have $5,000 and you want to set up a CD ladder to cover the next three years. Your CD ladder might look something like this:

With this arrangement, you’ll have access to at least some of your money every six months. When a CD matures, you could roll it into a new 36-month CD to keep the ladder going. Or you could purchase CDs with maturities that come due when the first 36-month CD matures (so your money is available for a down payment, vacation, or other major purchase or investment on that date).

Use a CD ladder calculator to play with the numbers and help you create your ideal scenario.

Where To Buy CDs

You can find CDs at traditional banks, online banks, and credit unions. When comparing CDs, it’s important to consider the interest rates you could earn, the minimum deposit requirements, and early withdrawal penalties.

Interest rates for CD accounts can vary widely. You may earn a higher rate by maintaining a higher balance, for example, or by choosing a longer term. Also note that credit unions or online banks may offer more competitive CD rates compared to traditional brick-and-mortar banks. But since rates are highly susceptible to changes in the economy, it’s best to shop around to see what options might best meet your needs when you’re ready to open your CDs.

Next Steps and More Resources

CD ladders can help you save for long-term goals, such as planning a wedding or buying a home. While you can also use them to save for retirement, taking advantage of your employer’s 401(k) can yield some significant tax benefits. 

Compare CD rates and earn more about starting your own CD ladder: