CD Ladder: Rungs, Average Yield, and Liquidity With a Worked Example
October 29, 2026
A CD ladder splits your money across certificates of deposit with different maturities so that part of the money becomes available at regular intervals while the rest earns the higher rates that longer terms usually pay. It balances yield and access.
Suppose you have $30,000. Divide it into five $6,000 CDs with terms of 1, 2, 3, 4, and 5 years. When the 1-year CD matures, you reinvest in a new 5-year CD, so after the first year you hold CDs maturing every year, all earning the 5-year rate.
Skip the math and get your answer instantly:
Open the Savings Calculator →First-Year Interest Example
Assume rates of 4.0% (1 year), 4.1% (2 years), 4.2% (3 years), 4.3% (4 years), and 4.4% (5 years). Interest in the first year: $6,000 × (0.040 + 0.041 + 0.042 + 0.043 + 0.044) = $6,000 × 0.210 = $1,260, an average yield of 4.2%. Compare this with putting all $30,000 into the 1-year CD at 4.0% ($1,200) or all into a 5-year CD at 4.4% ($1,320). The ladder earns $60 more than the 1-year CD and $60 less than the 5-year, but with $6,000 available each year.
After five years of rolling every maturing CD into a new 5-year CD, all rungs earn the 5-year rate, if the rate stays at 4.4%: $30,000 × 4.4% = $1,320 a year.
| Rung | Amount | Term | Rate | Year-1 interest |
|---|---|---|---|---|
| 1 | $6,000 | 1 year | 4.0% | $240 |
| 2 | $6,000 | 2 years | 4.1% | $246 |
| 3 | $6,000 | 3 years | 4.2% | $252 |
| 4 | $6,000 | 4 years | 4.3% | $258 |
| 5 | $6,000 | 5 years | 4.4% | $264 |
| Total | $30,000 | 4.2% avg | $1,260 |
Benefits and Risks
Benefits: regular access to cash without early withdrawal penalties, reduced risk of locking all money at a low rate, and the possibility of reinvesting at higher rates when rates rise. Risks: if rates fall, the longer rungs lock in higher rates, which is good; if rates rise, you reinvest only a portion at the new rates. Early withdrawal penalties (often several months of interest) apply if you break a CD. Inflation can outpace the yield, so check the real return.
Alternatives
A high-yield savings account gives full access, but the rate can fall at any time. Treasury bills and notes offer state-tax-exempt interest. A barbell mixes short and long terms. Brokered CDs can be sold on the secondary market but may lose value if rates rise. For FDIC insurance, keep each bank's total (per depositor, per ownership category) within the $250,000 limit.
Setting It Up
Decide the amount you can lock away and the interval you want access, such as every 6 months with 6-month steps. Check the rates across terms: if the 1-year and 5-year rates are nearly equal, a ladder offers little reward for tying up money. Set calendar reminders for maturities, because CDs usually auto-renew at the then-current rate if you don't act within the grace period.
Frequently Asked Questions
What is a CD ladder?
Multiple CDs with staggered maturities so that money becomes available regularly.
What is the interest on a $30,000 five-rung ladder in the example?
About $1,260 in the first year.
What happens when a rung matures?
You reinvest it in a new longest-term CD to keep the ladder.
Is there a penalty for early withdrawal?
Usually, such as several months of interest.
What is the FDIC limit?
$250,000 per depositor, per bank, per ownership category.