What is a CD Ladder?
A CD ladder is a savings strategy where you divide a sum of money into equal amounts and invest them in Certificates of Deposit (CDs) with different maturity dates. This approach provides a balance between the higher interest rates of long-term CDs and the liquidity of short-term CDs.
How a CD Ladder Strategy Works
Instead of locking all your money in a single long-term CD, a laddering strategy splits your deposit across multiple terms. For example, a 3-Year Ladder might involve investing in 1-year, 2-year, and 3-year CDs simultaneously. As each CD matures, you reinvest it into a new 3-year CD. A 5-Year Ladder expands this to 1, 2, 3, 4, and 5-year terms. This ensures you have access to a portion of your funds every year (liquidity) while eventually earning the higher interest rates typically reserved for longer-term commitments.