What is CD laddering and can it make me money?

Oct 18, 2023
cds, certificate of deposits, savings strategy, safe investments, investing 101, personal finance, high yield savings accounts, what is cd laddering, should i invest in a cd, money market accounts

Unlocking Financial Flexibility: The Power of CD Laddering

When it comes to managing your money, finding safe and effective ways to grow your savings is essential. One strategy that often flies under the radar but offers valuable benefits is the Certificate of Deposit (CD) ladder. It's a straightforward yet powerful method for optimizing your savings and maximizing returns. And with rates as high as 5.51%, now might be a great time to get into the CD ladder game. In this blog post, we'll dive into the world of CD laddering, exploring what it is, how it works, and why it might be the right choice for your financial goals.

First, what is a CD?

A Certificate of Deposit, commonly known as a CD, is a financial instrument banks and credit unions offer. It's a low-risk savings option that allows individuals to invest a specific amount of money for a predetermined period at a fixed interest rate. CDs come with a maturity date, and during this time, your money is held by the financial institution. In return for locking in your funds for that duration, you receive interest payments, typically at a higher rate than a regular savings account. CDs are known for their safety, as they are often insured up to a certain limit by the Federal Deposit Insurance Corporation (FDIC) for banks or the National Credit Union Administration (NCUA) for credit unions. They are a popular choice if you're saving for a high-ticket item and need liquidity in the short term, are nearing towards retirement, or are a risk-averse saver looking to earn a predictable return on their savings.

What is a CD Ladder?

A CD ladder is a systematic approach to investing in certificates of deposit with staggered maturity dates. Instead of putting all your money into a single, long-term CD, you divide your funds across multiple CDs with varying term lengths. These terms can range from a few months to several years.

How Does CD Laddering Work?

The key to a successful CD ladder is to maintain a consistent structure where each CD matures at regular intervals. Here's a step-by-step guide to building and managing a CD ladder:

1. Set Your Financial Goals: Determine your savings goals, like saving for a big purchase such as a home, home improvements, a car, a wedding, or maybe even future kids' activities like sleep away camp or a big move. Also, preparing for retirement.

2. Divide Your Savings: Figure out how much you want to tuck away for each CD. Allocate them based on your needs and risk tolerance. Each portion will fund a CD with a different maturity date. For example, let's say you have $60,000 and you only need to keep $20,000 liquid. Depending on your goals, you would then divide the $40,000 into different term lengths from 3 months to 18 months.

Here are some examples on how to think about CDs:

- I want $10,000 put away for moving expenses. I move in 6 months. I will open up a 5-month CD.

-I know I need to buy a car in a year, and I want to put down a large lump sum so the monthly payment is less. I will open up a 12-month CD because I do not need to buy the car now.

3. Open Multiple CDs: Invest each portion of your savings into separate CDs with varying term lengths. For instance, you could open CDs with terms of 3 months, 6 months, 1 year, 2 years, and so on. One of the annoying things about CD laddering in the past was that there wasn't one place to CD ladder. So you'd end up having multiple accounts across multiple banks/credit unions. Now with Raisin, you can find the best CDs, with the best rates, all on one platform. 

4. Create a Rolling Maturity: As each CD matures, reinvest the proceeds into a new CD with the longest term in your ladder. This ensures that you always have access to funds if needed while also benefiting from higher interest rates on longer-term CDs.

5. Repeat and Adjust: Continue this process by reinvesting each maturing CD into a new one with the longest term. Over time, your CD ladder will consistently generate interest income, and you'll maintain liquidity with CDs maturing at regular intervals.

Benefits of CD Laddering:

  1. Liquidity: With a CD ladder, you always have access to a portion of your savings because CDs are maturing regularly. This provides financial flexibility in case of emergencies or opportunities.

  2. Interest Rate Optimization: Longer-term CDs generally offer higher interest rates than shorter-term ones. By laddering, you can take advantage of these higher rates without locking up all your money for an extended period.

  3. Diversification: With a CD ladder, you're spreading your investments across different time frames, reducing the impact of interest rate fluctuations. This can help you earn a more consistent return.

  4. Low Risk: CDs are known for their safety and security. They are typically insured up to a certain limit by the FDIC, making them a low-risk investment option.


While CD laddering offers several advantages, it's essential to keep a few considerations in mind:

  • Interest Rate Risk: If market interest rates rise significantly during your ladder, you may miss out on the opportunity to lock in higher rates.

  • Early Withdrawal Penalties: Be aware of the penalties for early withdrawal from your CDs, as they can eat into your earnings.

  • Inflation Risk: CDs may not keep pace with inflation, so consider the impact on your purchasing power.

Who Would Benefit from a CD Ladder System?

1. Risk-Averse Savers: CD laddering is an excellent choice if you prioritize safety and want your cash close to the chest. CDs are considered low-risk investments; the only penalty is if you take out the investment earlier, but now there are no-penalty CDs that offer a lot more flexibility and freedom. By spreading your funds across different maturities (different fixed times), you can reduce the risk associated with interest rate fluctuations.

2. Emergency Fund Builders: Building an emergency fund is crucial for financial stability. With a CD ladder, you can ensure that a portion of your savings is always accessible without sacrificing potential interest earnings. *This is really only ideal for someone who ALREADY has over three months of an emergency fund. 

The ideal Emergency Fund Builder is someone who has three months of EXPENSES saved in a HYSA. The next three months can be in a three-month CD; the rest can go towards longer CD maturities. 

3. Short-Term Goal Savers: If you have specific short-term financial goals, such as a vacation, home down payment, or a major purchase, a CD ladder allows you to save while earning higher interest than a traditional savings account.

4. Retirement Planners: Those approaching retirement or already retired may use CD laddering to create a reliable income stream. By setting up a ladder with staggered maturities, retirees can access cash as needed without selling investments at inopportune times.

5. Conservative Investors: Investors seeking a conservative investment option can utilize CD laddering to balance safety and returns. It's an alternative to more volatile investments while still earning more than standard savings accounts.

6. Funds for Big Expenses: Planning for significant future expenses like tuition, home renovations, or a new car becomes more manageable with a CD ladder. You can earn interest while keeping your funds liquid for when you need them.

7. Income Stream Creators: Some individuals may set up a CD ladder with regular maturity dates to create a consistent income stream. As each CD matures, they can use the funds for living expenses or reinvest them as needed.

8. Diversification Seekers: Investors looking to diversify their portfolios can use CD laddering as a conservative component. It adds stability and predictability to a broader investment strategy.

Keep in mind that while CD laddering offers many benefits, it's not suitable for everyone. If you have a high tolerance for risk and are seeking higher returns, you may explore other investment options. Additionally, individuals who require immediate access to all their funds might find other savings vehicles more suitable. However, for those who value safety, liquidity, and a reliable income stream, a CD ladder can be a valuable addition to their financial toolkit.

In Conclusion:

A CD ladder is a practical and flexible approach to savings and investment. By strategically dividing your funds across CDs with varying maturities, you can strike a balance between safety, liquidity, and earning potential. Whether you're saving for short-term goals or building a foundation for long-term financial security, CD laddering is a valuable tool that can help you achieve your objectives. Start building your ladder today and watch your financial stability grow, one rung at a time.


This blog post was not sponsored by Raisin; however, it is Beyond The Green Coaching's preferred resource for High Yield Savings Accounts, Money Market Accounts, CDs, and no-penality CDs. We are a proud affiliate of Raisin.



Disclaimer: This website and its content is owned by Beyond The Green Coaching. AJ Schneider and the Financial Freedom Coaches are NOT financial planners, attorneys, accountants, therapists, counselors or psychologists. The information on this website and in the resources provided is for educational and informational purposes only. You acknowledge that you are participating voluntarily in using our resources, and you are personally responsible for any choices, actions and outcomes now and in the future. Before making any financial or investment decisions, we recommend you consult a financial planner. Beyond The Green Coaching is not liable for any errors or omissions of information supplied in these materials. 

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