A CD ladder splits your money across several certificates of deposit that mature at staggered dates, giving you the higher rates of long terms while keeping part of your cash coming due regularly.
It is the standard way to avoid the central trade-off of CDs: longer terms pay more but lock your money up. To see what each rung earns, use the free CD calculator.
How a CD ladder works
Instead of putting $25,000 into one CD, you divide it into five and buy CDs of increasing length. A classic five-year ladder looks like this:
| Rung | Term | Amount |
|---|---|---|
| Rung 1 | 1 year | $5,000 |
| Rung 2 | 2 years | $5,000 |
| Rung 3 | 3 years | $5,000 |
| Rung 4 | 4 years | $5,000 |
| Rung 5 | 5 years | $5,000 |
Each year one CD matures. You reinvest it into a new five-year CD at the back of the ladder. After the ramp-up, you always have a CD maturing every 12 months, but your whole ladder is earning the higher five-year rate.
Why ladder instead of one CD
- Liquidity: part of your money becomes available every year without an early-withdrawal penalty.
- Higher average rate: most of the ladder earns long-term rates rather than low short-term ones.
- Rate protection: you are not forced to lock everything in at one moment, so you reprice a portion each year as rates move.
Things to watch
CDs charge an early-withdrawal penalty, so only ladder money you can leave invested. Interest is taxed each year as ordinary income, even before a CD matures. And always compare CDs by APY rather than the headline rate, since compounding frequency changes the real return. The CD calculator shows the APY and maturity value for each rung so you can build the ladder with real numbers.