Climbing the CD Ladder

June 30, 2023

If you’re looking for a savings strategy that offers decent interest rates while still ensuring that you have funds available on short notice, CD laddering may be the solution. A CD (Certificate of Deposit) ladder is an arrangement of multiple medium- or long-term CDs with staggered maturation dates, which lets you take advantage of the higher interest rates available on CDs, but also doesn’t leave all of your funds tied up in investments for months or years at a time.

How To Build a CD Ladder
When planning a CD ladder, the main questions to ask are: what term CD should be used, and how many of them? These factors will determine how often money will be available to withdraw or reinvest.

Start by splitting up the initial investment across CDs with staggered terms. In this example, a customer is investing $15,000 split across three CDs, each maturing one year apart.

Diagram showing funds split across 1 year, 2 year, and 3 year CDs

When the shorter CDs mature, reinvest the money (along with the accrued interest) into a longer-term CD. 

Diagram showing funds being reinvested from 1 and 2 year CDs into 3 year CDs

Continue to reinvest the money into long-term CDs until you are ready to withdraw it or until you need liquid funds. In the example, even though the money is invested in three-year CDs, funds are available every year.

Diagram showing 3 year CDs being reinvested into other 3 year CDs.

What Are the Benefits?
A CD ladder is a reliable, conservative investment strategy. It offers a guaranteed rate of return, and you can take advantage of the higher rates often offered by longer-term CDs without locking up all of the invested funds for multiple years.

If rates rise, a CD ladder also gives the investor the option of taking advantage of accounts with higher Annual Percentage Yields (APYs). Alternatively, the investor can choose not to reinvest their money if rates fall or if they wish to withdraw.

CDs are also backed by the FDIC (Federal Deposit Insurance Corporation), just like a savings or checking account would be. The FDIC was established in 1933 following the Great Depression and insures up to $250,000 per depositor, per insured bank, for each account ownership category – even if your bank fails, the money in your CD is safe. This sets CDs apart from other investments like stocks, bonds, mutual funds, annuities, and cryptocurrency assets, which are not covered by the FDIC.

What Are the Drawbacks?
CD ladders are safe and reliable, offering guaranteed returns, which is also their primary drawback – they’re outpaced by the potential returns offered by more aggressive investment strategies.

Additionally, when interest rates are declining, you may end up investing the money from a matured CD into a new one with lower rates.

Are CD Ladders the Right Decision?
CD ladders are a great option for those seeking a safe, predictable investment strategy. They offer a predetermined yield that is often higher than what would be available with a single short-term CD, but they offer more flexibility and liquidity than a single long-term CD. However, they will usually have lower potential returns than riskier, more aggressive investment strategies.

When you’re deciding whether a CD ladder is the right investment strategy for you, consider your investment goals, your timeframe, and how often you want to be able to access your funds. And as always, your best resources are the knowledgeable and friendly bankers from Gulf Coast Bank & Trust Company – we are always happy to help you explore your investment options or get started on a CD ladder.

Gulf Coast Bank & Trust Company is committed to being the bank that cares about you. If you have any topics that you would like us to discuss, we invite you to email them to with the subject line “Let’s Talk!”

The content on this page is informational only and not intended to provide financial or investment advice. Consult your tax advisor for specific advice on your unique circumstances.