What is a CD Ladder and How to Build Them?

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The certificate of deposit (CD) has long been one of America’s most popular savings tools.

While many people invest in CDs, not everyone wants to keep all of their savings in a single investment for a few reasons: If you need the money before the CD matures, you may have to pay a penalty to withdraw. Secondly, if rates rise, you’ll need to wait until your CD matures to reinvest and take advantage of the better rate.

It’s for these reasons, among others, that many investors choose to use a CD ladder investment strategy, which involves putting money into several certificates that mature at different times.

What Is a CD Ladder?

A CD ladder gives investors more access to their money and allows people to take advantage of rising interest rates or keep a better interest rate. Rather than having your money tied up in one CD, you’ll put your cash in a variety of CDs – from short-term to longer term ones. When the shortest term CD comes due, you might take those dollars, and the interest paid, and reinvest it in a longer term CD. If interest rates rise, then that new deposit will pay you more than the CD that just matured.

CD Ladder Strategy

Here’s how to ladder CDs: Essentially, take the amount you want to save and split it into multiple parts. You can use the same strategy with as many different parts as you like, but for the purposes of explaining the process, we’ll start with an example of five.

SAMPLE CD LADDERING STRATEGY: If you have $100,000, and would like steady access to your money over 5 years, you could divide that sum into 5 equal parts — $20,000 per CD — and invest it in a series of CD terms with incremental maturity dates, as shown below.

$20,000 -> 12-month CD
$20,000 -> 24-month CD
$20,000 -> 36-month CD
$20,000 -> 48-month CD
$20,000 -> 60-month CD

In 12 months, when the first investment matures, consider depositing that money into a new five-year CD. If you continue reinvesting in your maximum selected term every time a certificate matures, then you’ll build a long-term ladder of savings that offers you steady access to your funds while earning a higher Annual Percentage Yield (APY).

Even better, if APYs rise, you won’t just earn more on every new five-year deposit — you’ll also generate additional savings as you’re now investing the principal and the interest into that new CD.

While most banks have some sort of CD offering, PurePoint Financial has many different term options to choose from, from six to 60 months. Each comes with a different APY, and they can easily be opened online or by calling our Client Support Center. They’re also insured up to the maximum amount by law, by the Federal Deposit Insurance Corporation (FDIC). Please note deposits of PurePoint Financial and MUFG Union Bank, N.A. are combined and not separately insured for FDIC insurance purposes.

CD Ladder Example

Here is a five-year CD ladder example using sample APYs to give you an idea of how much your savings can grow with a CD ladder strategy.

Savings amount: $100,000
Split into five ways: $20,000 per CD
The value of your CD ladder at the end of each year (doesn’t include reinvestment):

Est. Value of ladder
12 month
$20,000 2.75%
24 month
$20,000 2.85% $105,894
36 month
$20,000 2.90% $109,039
48 month
$20,000 2.95% $112,300
60 month
$20,000 3.00%

The Result:

According to Interest.com, which has a CD ladder calculator, employing this kind of CD ladder investment strategy could earn an investor $115,669 over five years with an average APY CD ladder rate of 2.88%. If you put $100,000 into a one-year CD with a 2.75% APY and rolled it over into subsequent one-year terms, you could earn $114,527. In other words, a CD laddering strategy could net you $1,141.40 more.

Why Build a CD Ladder?

A CD ladder can be a good investment because it’s flexible. It can be customized to a person’s needs and, can potentially earn you more money in the long run than if you only invested in a single CD.

Ultimately, CD laddering gives people peace of mind — you can feel good knowing that at least one or more CDs would be maturing sooner rather than later and take advantage of better rates if they become available. Or, if overall APYs do fall, then the money you invested in those long-term CDs will earn you more than you might have been able to otherwise.

Is a CD Ladder a Good Investment?

A CD ladder is a popular CD investment strategy. It helps to minimize interest rate risk with incremental access to your money and greater long-term earning potential. Whether it’s right for you will depend on your personal situation and your financial goals.

Offerings and APYs are an important part of deciding where to save, and the multiple CD terms offered by PurePoint provide a variety of savings options and a highly-competitive APY to help you earn more. Now that you understand how CD ladders work, they can become another option in your investment toolkit.


  1. Interest.com

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