Building a CD Ladder Strategy
A CD ladder combines higher interest rates from long-term CDs with regular access to funds through staggered maturity dates.
Instead of putting 25,000 in a single 5-year CD at 4.5%, you divide it into five5,000 CDs maturing in 1, 2, 3, 4, and 5 years.
Each year, as a CD matures, you reinvest it in a new 5-year CD at current rates.
After the initial setup, you have a CD maturing annually while maintaining higher long-term rates.
This strategy provides liquidity, reduces interest rate risk, and captures higher yields than keeping all funds in short-term savings.
CD ladders work best when the yield curve is normal (longer terms pay more) and when you want predictable returns without market risk.
Consider 3-month to 5-year CDs for flexibility, but note early withdrawal penalties (typically 3-12 months interest).
With rates at 4-5%, a $50,000 ladder earning an average 4.25% yields $2,125 annually versus $1,500 in a 0.01% savings account—a $625 difference.