Certificate of Deposit Ladder

Guide To CD Laddering

Since its generally true that long-term CDs earn the highest interest rates, CDs can be a powerful way to save money, but lifes unpredictability can sometimes leave you wondering if you can afford to be without ready access to your CD balance until it matures. Thats where CD laddering can help. With it, you can maximize your earnings while still getting periodic access to your money if you need it.

In its most basic form, a CD laddering strategy might look like this:

  • Instead of opening a 5-year $5,000 CD, you would divide your initial deposit into 5 equal CDs:
    • $1,000 in a 5-year CD
    • $1,000 in a 4-year CD
    • $1,000 in a 3-year CD
    • and so on until you've got your CD ladder built.
  • Then, when your 1-year CD matures, you would have access to $1,000 plus the interest you earned. Because youre building a CD ladder, youd roll at least part of that money into a new 5-year CD, knowing that in one year, your 2-year CD will be available to do the same.
  • The CD laddering pattern would then continue as each initial CD matures — youd have access to your balance each year and you could roll some or all of the money into a new, 5-year CD.
  • By the time your first 5-year CD matures, youd have 4 other 5-year CDs growing away.
  • And by year 6 the second of your 5-year CDs could be maturing, with another 5-year CD maturing each year after that until whenever you want.

CD Laddering can be used to build savings for a long-term goal like saving up for a house, education expenses or anything else. Depending on how much money you deposit, you can even use CD laddering to build a steady stream of interest income, withdrawing only the interest earned on each CD as it matures.

One factor to keep in mind when using a CD ladder strategy is the FDIC insurance on your deposits. When you find a bank like Ally Bank, where our CD rates are consistently among the most competitive in the country and all deposits are FDIC-insured, it might make sense to look for ways to maximize FDIC coverage up to the maximum allowed by law.

Ready to build a ladder toward your financial goals? Check out the CD ladder calculator at AllyBank.com today or talk with one of our knowledgeable customer care representatives at 877-247-ALLY (2559), where help is always available, 24/7.