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How to Build and Grow a CD Ladder

How to Build and Grow a CD Ladder

When interest rates are low (as they are now), it is difficult finding decent low risk high yield investments. For this reason, building a CD Ladder may be a way to hedge against very low rates. A longer term CD (e.g. 5 years) will usually pay a much higher interest rate than a shorter term CD (e.g. 1 year).

Unfortunately, putting all your savings into a 5 year CD prevents you from having easy access to it in the short term. By spreading your investment out across multiple accounts, you can not only earn a better overall combined interest rate, but you also allow your money to be more readily available.

Here are six easy steps to help you build a CD Ladder:

1. Funding a CD Ladder

The first step in building a CD ladder is financing the investment. Since most savings accounts don’t pay a lot in interest these days, you may want to fund your new investment from there. Just make sure that you can afford to live without this money for a while, as a certificate of deposit is not as liquid as a savings account.

Try and target at least a few thousands dollars to start your CD ladder if you can afford to. Most certificate of deposit accounts need to be funded with a minimum deposit, so targeting $1,000 per account is a good place to start. If you don’t have this kind of savings available, there are a few institutions that don’t require any minimum deposit such as Ally Bank.

2. Research the Best CD Rates

Once you have found the funding to build your CD ladder, the next step is to start researching the best interest rates. Online banks and credit unions are good places to start looking for the most competitive high yield certificate of deposit rates. These types of institutions can typically offer much more competitive rates than traditional brick and mortar banks because of lower overhead costs.

A quick way to look at most types of high yield investments is to check out sites such as These sites provide an easy way to compare various interest rates.

3. Split Investments Equally

One of the most important things to remember about building a CD ladder is to split the funds evenly across multiple accounts. Each account that you decide to open in the ladder is often called a rung. Because interest rates vary across different certificate of deposit accounts, it is important to spread out your total investment.

Once you have found the funding for your investment and completed your research of interest rates, you can decide how many different accounts you plan to open. For example, if you have $5,000 to start, you may want to break it up into 5 different parts or $1,000 per account. Maybe you think 5 is too many to start with and decide to spread your investments across 4 accounts, or $1,250 each. It is normally a good idea to stick with 4 or 5 different accounts to maximize your earnings potential.

4. Target Evenly Expiring Certificates

At this point, you have identified how you will be funding your CD Ladder, researched the best certificate of deposit interest rates available, and decided on how many “rungs” of the ladder you plan to create. The next step is to decide on a time interval between each CD account. Just as you split up your funds evenly, it is just as important to open up accounts that expire on the same interval.

The most common interval is typically 12 months between the expiration dates of multiple accounts. For example, an investor looking to build a CD Ladder with 5 rungs may want to open up accounts that expire at 12 months, 24 months, 36 months, 48 months, and 60 months. If the investor had $5,000 to fund their ladder, then they would invest $1,000 into each of these 5 different CD’s.

There are also some institutions that offer certificate of deposits that expire on 6 month or 18 month intervals. These types of accounts may be harder to find, but are available.

5. Initial Investment into a CD Ladder

After you have completed all of your research and allocated the proper funds, it is time to make your initial investment. Try and open each of the accounts or rungs on the same day or at least within a week to make sure that you are on the same cycle for each account expiring. This is probably actually the easiest step there is in the whole process of building a CD ladder.

Prior to opening the account, make sure you are able to transfer your initial investment amount over to the new institution or bank. This will help to save time and avoid any frustrations in the process.

6. Maintain and Grow a CD Ladder

Now that all of your accounts are setup and earning that high interest, you want to make sure you don’t forget to maintain your investment. Investing in CD’s is one of the purest forms of passive income, but there are still a few things you need to maintain.

The most important thing to remember is to renew your certificate of deposit accounts as they expire. In order to keep the ladder going, you need to reinvest the funds (hopefully the principal and interest) from the first expired CD into a new account with the longest term from your initial investment.

Here is a hypothetical example of years 1 and 2 of a 5 rung CD ladder –

Year 1

  • 12 Month – Invest $1,000 at 1.50%
  • 24 Month – Invest $1,000 at 1.75%
  • 36 Month – Invest $1,000 at 2.00%
  • 48 Month – Invest $1,000 at 2.25%
  • 60 Month – Invest $1,000 at 2.50%

After the first year is up, your CD ladder would look something like this –

Year 2

  • 12 Month – Expired – reinvest $1,000 + interest for 60 month CD
  • 24 Month – 12 months remain till expiration – earning 1.75%
  • 36 Month – 24 months remain till expiration – earning 2.00%
  • 48 Month – 36 months remain till expiration – earning 2.25%
  • 60 Month – 48 months remain till expiration – earning 2.50%

As you can tell, once the first CD expires, you simply reinvest it back into a 60 month CD to keep the ladder growing.

Final Thoughts

Building a CD Ladder is really not very hard. As long as you have a few thousand dollars to invest and don’t mind dong a little research, you can hedge against interest rate volatility. Spreading out your investments equally across evenly expiring certificate of deposit accounts can provide a safe and steady source of recurring income, which can help you increase your overall wealth.


  1. luke says:

    first time when I hear about a cd ladder

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