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Earning More Interest Through CD Laddering

In this era of microscopic savings rates, one way to squeeze a little more interest out of your savings is what’s known as CD laddering.

What is a CD?

A CD is a certificate of deposit.  It’s a low risk savings vehicle offered by banks, credit unions, and brokerage houses.  You agree to keep the money on deposit for a certain period of time – usually 3 months to 5 years – in exchange for a somewhat higher rate than you’d get from a traditional savings account.  The longer the term, the higher the rate.

If you need the money before the CD’s term is up, you can get it, but you’ll usually have to pay a penalty.

What is a CD Ladder?

CD laddering is a strategy of putting money into multiple CDs that mature at different points in order to earn more interest without locking up all your money for too long a period of time.

Let’s say you have $3,000 that you could put into CDs.  Let’s also assume that 1-year CDs are paying 1.25 percent interest, 2-year CDs are paying 1.5 percent, and 3-year CDs are paying 1.75 percent.  Of course, you want the 1.75 percent rate.  The problem is that you have to lock up all of your money for 3 years.  Here’s where a CD ladder could help.

Put $1,000 into a 1-year CD, $1,000 into a 2-year CD, and $1,000 into a 3-year CD.  Once the 1-year CD matures, you roll that into a 3-year CD.  The next year your 2-year CD will mature and you roll that into a 3-year CD.  Now you have all of your money in the highest yielding CDs and yet $1,000 of your $3,000 is available to you every year.  If you don’t need the money for anything else, you could keep rolling it into new CDs.

To find out how much more interest you could generate with a CD ladder, use this calculator.

How Long a CD Ladder Should You Build?

You can build CD ladders of various lengths.  For example, you could build a 12-month CD ladder by using 3-month CDs.  You could have access to one-fourth of the money every 3 months by dividing your total into fourths and spreading it across 3-, 6-, 9-, and 12-month CDs.  There are other iterations as well.

Because online banks are paying about 1 percent in interest right now and 1-year CDs are paying about the same, it doesn’t make much sense to use CDs for a 12-month ladder.  But if you’re willing to lock up money for a bit longer, you could beat the online banks.

What Money Should You Use for a CD Ladder?

Ideally, everyone should have an emergency fund totaling six months’ worth of living expenses.  Since ease of access is one of the most important features of an emergency fund, I recommend keeping your emergency fund in a bank or credit union money market account.

If you wanted to be a little more aggressive, you could keep 3 months’ worth of living expenses in a money market account and then in each of the next 3 months put 1 month’s worth of living expenses in a 3-month CD.  As each CD matures, buy another 3-month CD.

An especially good use of a CD ladder is for savings goals you’d like to accomplish within the next 3-5 years, like the purchase of a vehicle.  Of course, you could put all of the money into a 3-, 4-, or 5-year CD.  However, using a CD ladder would give you access to some of the money sooner just in case you need or want to use the money for something else.

One other use of a CD ladder would be for retirement savings that’s in a cash investment like a money market fund.  Especially as you get into your mid 40s and older, ideal asset allocations will call for a portion of your retirement money to be in cash and a CD ladder will likely deliver a better return than a money market fund.

Finding the Best CD Rates

Today, according to, the best CD rates are 1.5 percent interest for a 2-year CD, almost 1.9 percent for a 3-year CD, and almost 2.5 percent for a 5-year CD.

By contrast, my lead sponsor, Christian Community Credit Union (CCCU), is paying 2 percent for a 2-year “Kingdom Builder” certificate, 2.25 percent for a 3-year certificate, and 2.8 percent for certificates with terms ranging from 48-59 months.  Money you put on deposit with CCCU is used to help provide affordable financing to churches and other ministries.

What other questions do you have about CD ladders?  Or, if you’ve used a CD ladder, what’s been your experience?

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3 Responses to Earning More Interest Through CD Laddering

  1. Edgar July 26, 2011 at 10:15 AM #

    I’ve been working on a 6 month emergency fund CD ladder for almost 2 years now. Starting with the $500 minimum deposit, I’ve added at least $100 each month as the CD matures. I can see the light at the end of the tunnel. If the budget holds, we’ll be completely funded in March, 2012.

    It’s a little work once a month, but come next March, we can let them start rolling over each maturity date. Yes the interest is small, but it’s about what the published inflation rate. It’s not our primary investment, but a disciplined emergency fund.

    I checked out money market accounts, but the account minimums were way too much and the yields weren’t any better than the CDs.

    Actually, I guess I’m getting old and boring, but I’m using CDs more and more as a short term tool. When we got our tax refund, I took the amount due for our fall car insurance payment and put that in another 6 month CD. It’s out of a sight and out of mind until October. And we’re picking up an extra 0.15% interest. Ok, that only work sout to be something like an extra 3 bucks, but, it’s something.

  2. Matt Bell July 7, 2011 at 12:08 PM #

    I hear ya, Scot, it can involve some work. The procedures vary by bank or credit union, but with the last certificate I had, when it was getting set to mature I received an e-mail with some pretty easy options for what to do with it. It also depends on how complex a ladder you set up. Some people have CDs maturing every month, which sounds like a bit much to keep up with.

    Also, anyone who takes the time to comment on a blog post isn’t lazy in my book!

  3. Scot Hollingsworth July 7, 2011 at 9:16 AM #


    I tried doing a CD ladder many years ago but felt like it was too much work. (Keep in mind that my own mother has called me lazy, so…)

    I guess this is something I would be much more likely to do if it were a packaged financial product where the bank sets it up, rolls it over, etc. If all I had to do is supply the money and check a few boxes on an app, then sure.


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