CD Ladders Are an Incredible Savings Strategy, Here’s How to Build One

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Certificates of deposit (CD) have many benefits to offer savers. In exchange for agreeing not to withdraw the funds you deposit into a CD for a set period of time, you can often earn a higher interest rate on your savings than you might receive with other types of deposit accounts. 

One potential downside of CDs, however, is the fact that the accounts are sometimes unable to keep up in an environment of rising inflation. CD laddering is a strategy that aims to address this problem. But there are risks to be aware of as well.

Below are the details you need to know to learn how CD laddering works. You’ll also discover how to build a CD ladder for yourself if you decide this savings strategy sounds right for you. And, of course, we’ll cover some alternatives to CD ladders you can also consider.

What Is a CD Ladder?

A CD ladder is a type of savings strategy. When using this financial tactic, you spread your cash investment among multiple CDs instead of depositing a lump sum into a single certificate of deposit account.

An important component of the CD ladder strategy is staggering your CD maturity dates. The point of a CD ladder is to have your funds become available to access or re-invest at different dates.

Many savers who use CD ladders hope that when their various CDs mature, a higher interest rate on a new CD might be available. If that happens, the saver would have the opportunity to re-invest their funds into a CD that offers a higher annual return. But, of course, there’s no guarantee that interest rates will rise.

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Benefits and Risks of CD Ladders

If you’re considering building a CD ladder for yourself, it’s important to consider both the pros and cons that this savings strategy represents.

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How to Build a CD Ladder

CDs come with varying terms, typically ranging between a few months up to five years. So, when you build your CD ladder, you’ll have varying maturity dates from which to choose.

In general, long-term CDs (typically five years in length or more) feature some of the highest interest rates that financial institutions have to offer. However, it’s increasingly common to find attractive annual percentage yield (APY) offers from online banks and credit unions for one-year CDs, two-year CDs, three-year CDs, and more.

In some cases, you might discover that a one-year CD has a higher APY than a three-year CD. Another bank might offer its highest APY on a two-year CD. Therefore, it’s wise to shop around and compare CD offers — especially when you’re using the CD ladder strategy to try to take advantage of the highest rates possible.

CDs to Consider

CIT Bank Term Certificates of Deposit

Open CD

Member FDIC

• Our Rating 3.5/5 How our ratings work
• Minimum
  Deposit Required$1,000
• 1 Year APY0.30% More Info

  Annual Percentage Yield is accurate as of March 31, 2023. Interest rates for CIT Bank's term CDs are variable and subject to change at any time without notice

• 3 Year APY0.40% More Info

  Annual Percentage Yield is accurate as of March 31, 2023. Interest rates for CIT Bank's term CDs are variable and subject to change at any time without notice

• 6-Month APY5.00% More Info

  Annual Percentage Yield is accurate as of March 31, 2023. Interest rates for CIT Bank's term CDs are variable and subject to change at any time without notice

Many banks that offer CDs require customers to commit to lengthy terms of several years or more in order to earn the highest interest rates available. However, with CIT Bank's term CDs, the opposite is true. To get the best rates at CIT, you'll need to open one of its shorter-term CDs, such as its 6-month CD that pays 5.00% APY. If you want an easy way to save more money without having to wait years, CIT Bank's term CDs are a solid option.

• Overview
• Pros & Cons

Overview

If you’re looking for a dependable way to earn interest on your money in the short term, CIT Bank’s certificates of deposits may be an excellent choice for you. However, those looking to open a long-term CD may be better off looking elsewhere.

Pros

• Strong rates for 13- and 18-month terms
• FDIC insured

Cons

• Rates for longer terms unimpressive

Synchrony Bank Certificates of Deposit

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at Synchrony

• Our Rating 5/5 How our ratings work
• Minimum
  Deposit Required$0
• 1 Year APY5.10%
• 3 Year APY4.30%
• 9 Months APY5.00%

Synchrony Bank offers some of the most flexible CD options currently available. With terms ranging from three months to five years, as well as a Bump-Up CD and No-Penalty CD option, there's likely a certificate of deposit in Synchrony's roster that lines up with your needs. Additionally, none of Synchrony's CDs require a minimum opening balance, which is remarkably rare (many of the best CD rates require a minimum deposit of $1,000 or more). Across the board, Synchrony offers higher rates than most traditional banks, and some even outpace the best online banks' rates. All this makes Synchrony CDs an easy recommendation.

• Overview
• Pros & Cons

Overview

Synchrony Bank offers CD terms ranging from 3 months to 60 months, and across the board its rates are some of the highest currently available. While it only offers one No-Penalty CD and one Bump-Up CD, both are competitive in their respective areas. Another major perk of Synchrony CDs is the lack of a minimum opening deposit requirement; many CDs with comparable rates require you to commit to $1,000 or more, which make Synchrony’s CDs remarkably accessible by comparison.

Pros

• Strong interest rates
• No minimum deposit requirement
• Strong no-penalty and bump-up CD options

Cons

• Only offers terms of up to 60 months

Quontic Bank Certificates of Deposit

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at Quontic

• Our Rating 3/5 How our ratings work
• Minimum
  Deposit Required$500
• 1 Year APY5.30%
• 3 Year APY4.40%

Quontic CDs typically offer a pretty solid APY, especially for one-year terms. However, Quontic’s early withdrawal penalties are notably steep compared to competitors.

• Overview
• Pros & Cons

Overview

With rates of up to 5.30% APY, Quontic Bank’s certificates of deposit are competitive with the best CD rates currently offered. While the minimum opening deposit is also relatively low, it’s worth noting that Quontic’s early withdrawal penalties are on the steep side.

Pros

• Strong interest rates
• Relatively low minimum opening deposit

Cons

• Harsh penalties for early withdrawal
• No no-penalty option

CD Ladder Example

Let’s assume you have $30,000 to invest. Below is a hypothetical example of how you could use a CD ladder to open three accounts and stagger your savings among multiple certificates of deposit.

In the example above, one of the CDs in your ladder matures once every six months. With the arrival of each maturity date, you gain access to $10,000 of your savings, plus the interest you earned on your funds.

When each CD in your ladder matures, you have the opportunity to re-invest the funds as you see fit. And if interest rates are higher than they were when you started this process, you can take advantage of those elevated APYs by opening a new CD and further extending the height (and value) of your CD ladder.

Make sure you keep track of the maturity dates for all your CDs, as they may automatically roll over soon after. If this happens, you won't have the opportunity to compare rates and potentially move funds to a stronger CD.

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Alternatives to CD Ladders

Aside from the CD ladder, there are other low-risk ways to earn more money on your savings. Here are two additional savings strategies to consider if you’re not sure CD laddering is right for you.

• Bump-Up CDs: Some banks and credit unions offer a product called a bump-up CD. When you open a bump-up, the financial institution allows you to increase or “bump up” your APY if interest rates rise during your CD’s term. In general, a bank or credit union will only let you raise the APY on a bump-up CD once. So, it’s important to choose your timing wisely if you use this financial instrument.
  
• No-Penalty CDs: Another savings strategy to consider if you’re concerned about missing out on rising interest rates is a no-penalty CD. In general, no-penalty CDs don’t offer the highest rates available. However, they can provide you with the flexibility to withdraw your funds early without penalty if needed.

CIT Bank No-Penalty Certificate of Deposit

Open CD

Member FDIC.

• Our Rating 4.5/5 How our ratings work
• Minimum
  Deposit Required$1,000
• 11-Month APY4.90% More Info

  Annual Percentage Yield is accurate as of May 9, 2023. Interest rates for CIT Bank's No-Penalty CD are variable and subject to change at any time without notice.

CIT Bank's No-Penalty CD offers one of the most competitive rates with no early withdrawal penalty on the market. With this account, you can earn a 4.90% APY, and the CD matures in just 11 months, which is shorter than average.

• Overview
• Pros & Cons

Overview

The CIT Bank No-Penalty CD offers a 4.90% APY, which may be ideal for people who want both flexibility and a higher interest rate.

Pros

• Strong APY for a no-penalty CD
• No opening or maintenance fees

Cons

• Relatively high minimum opening balance

Bottom Line

There are many ways you can try to grow your cash to support your short- and medium-term savings goals. If you believe a CD ladder makes sense as part of your overall savings plan, be sure to shop around for the best CD rates available from various financial institutions (including online banks).