CD Laddering and Inflation Options

You can build a certificate of deposit (CD) ladder by buying and staggering multiple CDs with different maturity dates and interest rates. The laddering strategy essentially allows you to periodically access your money while retaining high interest rates.

Lindsey Crossmier, writer for RetireGuide
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    Lindsey Crossmier

    Lindsey Crossmier

    Financial Writer

    Lindsey Crossmier is an accomplished writer with experience working for The Florida Review and Bookstar PR. As a financial writer, she covers Medicare, life insurance and dental insurance topics for RetireGuide. Research-based data drives her work.

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    Lamia Chowdhury, editor for RetireGuide.com

    Lamia Chowdhury

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    Stephen Kates, Certified Financial Planner™ and personal finance expert

    Stephen Kates, CFP®

    Certified Financial Planner™ Professional and Founder of Clocktower Financial Consulting

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  • Published: March 17, 2023
  • Updated: April 21, 2023
  • 8 min read time
  • This page features 7 Cited Research Articles
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APA Crossmier, L. (2023, April 21). CD Laddering and Inflation Options. RetireGuide.com. Retrieved May 31, 2023, from https://www.retireguide.com/retirement-planning/investing/certificate-of-deposit/cd-ladder/

MLA Crossmier, Lindsey. "CD Laddering and Inflation Options." RetireGuide.com, 21 Apr 2023, https://www.retireguide.com/retirement-planning/investing/certificate-of-deposit/cd-ladder/.

Chicago Crossmier, Lindsey. "CD Laddering and Inflation Options." RetireGuide.com. Last modified April 21, 2023. https://www.retireguide.com/retirement-planning/investing/certificate-of-deposit/cd-ladder/.

Key Takeaways:
  • Laddering CDs offers earlier access to your funds while retaining a high interest rate.
  • There are different types of CD laddering strategies, such as a long-term, mini or uneven CD split ladder.
  • Some CDs automatically reinvest when they mature, so you’ll need to stay on top of all your CDs to avoid an accidental auto renewal.
  • You should compare various issuers’ interest rates before building a new CD ladder when your current one matures to ensure you get the best rates.

What Is a CD Ladder?

A CD ladder is a financial strategy in which you stagger the purchases of multiple CDs instead of putting a lump sum into one CD. This strategy allows easier access to your funds, including the new interest you’ve earned, as each CD matures.

The maturity dates play an important role in CD laddering because the longer the CD term length is, the higher the CD’s interest rate is. The higher the interest rate, the more money you’ll receive when the CD matures.

“Think of it as an actual ladder. What you’re doing with a ladder CD portfolio is staggering the purchases of your CDs. You’re buying CDs with different maturities. So instead of putting all your money in one CD, one interest rate and one time for maturity — you would divide the money and buy a three-month, six-month, nine-month and 24-month CD,” Barbara O’Neill, CFP®, CEO of Money Talk and author of Flipping a Switch, told RetireGuide.

After each CD matures, you can decide if you want to reinvest it or use the funds towards your retirement plan.

Think of it as an actual ladder. What you’re doing with a ladder CD portfolio is staggering the purchases of your CDs. You're buying CDs with different maturities. So instead of putting all your money in one CD, one interest rate and one time for maturity — you would divide the money and buy a three-month, six-month, nine-month and 24-month CD.
Barbara O'Neill, CFP®, CEO of Money Talk and author of Flipping a Switch, a guide to financial wellness later in life.

CD Ladder Example

Let’s say Samantha has $10,000 she wants to invest into CDs. She could build a five-year ladder by opening five CDs with $2,000 each.

5 Year CD Ladder Bar Graph

After each CD reaches its maturity, Samantha will get her initial deposit and the interest she has earned back. She can continue to grow her retirement nest egg by reinvesting each CD into a five-year term instead of pocketing her earnings.

By laddering CDs, you reap the benefits of having easier access to your funds with the shorter CDs and high interest rates from the longer-term CDs.

CD ladders provide a novel way to strike a balance between liquidity and higher returns. The benefit is highest when using a ladder over multiple years. However, the shorter your ladder rungs are, the less likely your CDs may offer substantial benefit over a high-yield savings account. It pays to compare your options for short-term savings to determine if it is worth locking up your money, even for a short time, for only a minor increase in returns.
High-Yield Savings Accounts

How To Build a CD Ladder

To start building your CD ladder, you can purchase your CDs from a bank, credit union or broker. You should also determine how much you want to invest into your CDs.

Most CDs are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per bank. The National Credit Union Administration (NCUA) insures CDs from credit unions up to the same amount. While most brokered CDs are FDIC-insured, it isn’t always guaranteed.

To ensure each of your laddered CDs are 100% FDIC-insured, make sure the amount in each CD doesn’t go over the $250,000 limit. However, there is a way to get around the FDIC limit. You can ladder your CD at different banks, so you are protected by the $250,000 coverage limit at each bank.

For example, say Keisha has $400,000 she wants to invest in laddering CDs. If she buys four $100,000 CDs all at the same bank, then only $250,000 of her $400,000 is insured by the FDIC.

Instead, she can open two CDs at one bank with $200,000 and open the other two CDs with her remaining funds at a different bank. This way, each bank’s deposit amount doesn’t surpass the $250,000 limit, and all of Keisha’s money is protected.

Once your CDs are purchased methodically — your CD ladder is built. However, you shouldn’t just purchase your CDs and leave them be. You should track your earnings and keep up with each CD’s maturity date.

Did You Know?
Some CDs have an automatic rollover or renewal. If your maturity date passes, your money may be automatically reinvested into another CD — and it won’t always have the same interest rate. Track your laddered CDs to avoid an accidental automatic renewal.

CD Laddering Strategies

There isn’t one best method to laddering CDs. There are different strategies to consider, such as the long-term CD ladder, mini-CD ladder and uneven split. The strategy that will suit you best varies depending on how much you want to invest.

If you have a small amount of savings to invest, then you may want to consider a mini-CD ladder and other retirement investment opportunities. If you have millions of dollars you want to grow, a long-term CD ladder and stocks could benefit your retirement plan.

“For example, if you want to preserve your wealth and supplement your retirement income with an extra $50,000 a year, ignoring taxes, you could build a five-year CD ladder that is yielding 4% in interest. This would require $1.25 million to invest in the CDs. You could have enough money to accomplish this, but you shouldn’t tie up your entire nest egg in CDs either.” — Cameron Valadez, CFP®, CPFA, AWMA®, Co-Founder of Planable Wealth.

A breakdown of the strategies below can help you determine which CD ladder method fits your needs.

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Long-Term CD Ladders

With a long-term CD ladder, you’re in for the long haul. The strategy is for those who won’t need to access their funds for years to come. Laddering jumbo CDs could work best for this strategy, since you’d have a large deposit with a higher-than-average interest rate.

Long-term CD ladders are staggered in year increments. After each CD reaches its maturity date, they’re typically reinvested for another five years, and then auto renewed.

Mini-CD Ladders

Mini CD ladders present the option for shorter term CDs, which are typically a few months long each. With this option, you could purchase a three-month, six-month, nine-month and one-year CD. The idea is the same as a long-term CD ladder, but you’ll be able to access your money in quicker intervals.

However, keep in mind that interest rates for shorter-term CDs are much lower. This can be misleading because some issuers will present a six-month CD with a 3% annual interest rate, but since the interest rate is annual and your CD is only six-months, you’d actually only be getting a 1.5% interest rate.

Uneven Splits

Uneven splits mean placing different amounts of money into different CDs to maximize growth potential. But you may want to consider hiring a financial planner to help you determine the amounts to pair with each CD’s interest rate.

If you can, secure a considerable chunk of your money into a long-term CD with a high interest rate. Since rates fluctuate regularly, you’ll benefit for years to come if you can lock in a lump sum at a high interest rate.

Pros & Cons of CD Laddering

The main benefits of laddering CDs are the security that CDs provide and increased liquidity.

“Laddering CDs can be a great way to reduce interest rate risk and maintain a consistent cash flow in retirement,” Valadez told RetireGuide.

The biggest drawback is juggling multiple CDs. If you miss a maturity date, your CD could auto invest at a lower rate. You’ll need to keep track of all your CDs and compare interest rates at different banks before reinvesting your funds. While this can be manageable on your own, you can also consider hiring a financial advisor to oversee your CDs performance.

Pros & Cons of Laddering CDs
Pros
  • Increased liquidity by giving you easier access to your funds
  • Safe and secure
  • Offers more customization
  • Ways to get around FDIC limits if you ladder CDs at different banks
  • Provides options for higher interest rates with CDS of different term lengths
  • Potential to lock in high interest rates in years to come
Cons
  • Requires more upkeep than a standalone CD
  • Your CDs can be auto renewed at a lower rate if you miss the maturity date
  • Lower returns compared to other investment options

Tips for CD Laddering

To maximize your CD ladder, consider reinvesting your money into another CD after your original CD reaches maturity. Remember to compare interest rates before reinvesting your CD, since the interest rates have likely changed. Issuers may also offer promotional CD rates that offer a higher interest rate for a limited time.

O’Neill offered a tip on the best time to invest in CDs. “As each CD matures, you take your proceeds and reinvest. With the ladder, you’re supposed to reinvest your money at the longest time intervals so you’re always maintaining the same sequence of maturity dates over time. It’s a good strategy since you’re hedging your bets.”

CD Laddering Tips
  • Reinvest your money into another CD at the longest time intervals.
  • Compare interest rates from other issuers.
  • Keep an eye out for issuers offering promotional CD rates.

Alternative Investment Options in Times of Inflation

While CDs offer safe, guaranteed returns, the interest rate still may not keep up with inflation. For example, as of April 3, 2023, a one-year CD from Ally bank offers a 4.50% interest rate. Ally bank’s rate is high compared to some competitors, but it still doesn’t keep up with inflation. In 2023, inflation is at 6.4%, according to the U.S. Inflation Calculator.

If you want your investments to have a better chance of keeping up with inflation, you’ll have to consider higher risk options with chances of higher return. This also doesn’t mean you shouldn’t consider CDs at all during high inflation. Instead, you should diversify your portfolio with a mix of safe and riskier investments.

Alternative Investment Options
  • Mutual funds
  • Money market account
  • Treasury inflation-protected securities (TIPS)
  • Inflation bonds
  • Stocks
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Last Modified: April 21, 2023
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7 Cited Research Articles

  1. Ally Financial Inc. (2023, April 3). Compare CDs. Retrieved from https://www.ally.com/bank/cd-rates/
  2. Federal Deposit Insurance Corporation. (2023). Deposit Insurance FAQs. Retrieved from https://www.fdic.gov/resources/deposit-insurance/faq/
  3. U.S. Inflation Calculator. (2023). Current US Inflation Rates: 2000-2023. Retrieved from https://www.usinflationcalculator.com/inflation/current-inflation-rates/
  4. Space Coast Credit Union. (2023). How CD Laddering Works and Benefits of this Savings Strategy. Retrieved from https://www.sccu.com/articles/personal-finance/how-cd-laddering-works-saving-benefits
  5. Gravier, E. (2022, September 21). Here’s Where Experts Recommend You Should Put Your Money During an Inflation Surge. Retrieved from https://www.cnbc.com/select/where-to-put-your-money-during-inflation-surge/
  6. Consumer Financial Protection Bureau. (2020, August 27). What Is a Certificate of Deposit (CD) Rollover or Renewal? Retrieved from https://www.consumerfinance.gov/ask-cfpb/what-is-a-certificate-of-deposit-cd-rollover-or-renewal-en-923/
  7. National Credit Union Administration. (2020, March). Retrieved from https://ncua.gov/newsroom/press-release/2020/deposits-are-safe-federally-insured-credit-unions