A CD ladder is a group of certificates of deposit with different maturity dates.
What it means
Instead of locking all the money for one period, you divide it among several CDs. One may mature each year or every few months.
When a CD matures, you can spend the cash or buy a new CD at the far end of the ladder.
A simple example
You split $50,000 into five $10,000 certificates of deposit. They mature in one, two, three, four, and five years. After the first year, one $10,000 CD becomes available while the other four keep earning under their original terms.
You can spend the maturing $10,000 or place it into a new five-year CD at the far end of the ladder. Repeating that process can create one maturity each year. The ladder gives regular access to part of the money and spreads the risk of locking everything at one interest rate, but early-withdrawal penalties and deposit-insurance limits still matter.
What people often miss
Taking money out early can cause a penalty. Check whether the CD renews automatically.
Deposit-insurance limits apply by bank, depositor, and ownership category, not simply by each CD.
Three questions worth asking
- When does each CD mature?
- What is the early-withdrawal penalty?
- Is the full amount within deposit-insurance limits?
Checked against primary sources
This explanation was checked against the sources below. Rules and limits can change, so check the source before making a decision.
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