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The Beginner's Guide to Building CD Ladders

By Evy De Kam, Rock Valley Lead Customer Service Representative


With the Federal Reserve’s interest rate hikes in response to inflation, it may be more expensive to get a mortgage, but you can also earn more money on your savings. Certificates of Deposit (CD) have always offered a higher interest rate than standard savings accounts, and now the rates are even higher. In these challenging economic times, many people are looking for safe places to store their money and hoping to find the best CD interest rates. In this article, we’ll look at a specific way to get even more out of your CD with a strategy known as “CD laddering.”

What is a CD Ladder?

A CD Ladder is an approach to saving in which you open more than one CD, staggering the maturity dates so you can access some of your savings in the near term while maximizing the interest you earn from longer-term CDs.

Unlike a checking or savings account, a CD requires you to commit your money for a set period of time or pay a penalty for early withdrawals. Our CD terms range from 3-60 months. Generally speaking, The longer the term you opt into, the higher your rate will be. So, CD laddering helps you take advantage of CDs’ higher interest rates without tying up all of your money for a certain term.

Like other savings accounts, CDs are FDIC-insured for up to $250,000.

How To Build Your CD Ladder

When it comes to building a CD ladder, you can deposit the same amount in each CD or opt for varying deposit amounts. Here is one example; you can use our CD Ladder calculator to test out your own different scenarios.


4-Rung CD Ladder With Funds Divided Equally

You have $10,000 to invest and you want to build a CD ladder with four rungs. You can divide the funds equally among the CDs with differing maturity dates like this:

  • $2,500 in a 30 month rate riser CD
  • $2,500 in a 24 month CD
  • $2,500 in a 12 month CD
  • $2,500 in a 6 month CD

When the one-year CD matures, you can either cash it out or reinvest the funds into your second long-term CD with a higher yield. This continues until you have all long-term CDs on your ladder, earning the highest APY possible.

Benefits of CD Laddering

A CD is one of the most low-risk investment options. They offer a guaranteed rate of return on the money you invest and are FDIC-insured. Other benefits include:

  • When you purchase a CD, you lock in your interest rate for the entire term of the CD. If savings rates fall, your CD deposit won’t be impacted.
  • On the other hand, if rates continue to rise, you can reinvest funds from shorter-term CDs into new CDs.
  • A CD ladder offers increased liquidity for your investments versus locking your money into a single CD.
  • With a CD Ladder, you get increased liquidity as well as earning higher interest rates on larger amounts of money. As you cycle through each ladder with reinvestments, you will have all CDs on longer term maturities earning the highest rates.

Drawbacks of a CD Ladder

Although the benefits of a CD Ladder seem to far outweigh the drawbacks, it’s important to go into any investment with your eyes open to the pros and cons.

  • Once you create a rung or purchase a CD, you can’t change your mind (at least without a penalty fee).
  • You might not be in the position to reinvest your cash when a CD matures, thus disrupting your ladder rungs.
  • The economic conditions that lead to increased CD rates also impact inflation rates. The inflation rates might outpace the CD interest rates.
  • Although CDs are considered one of the safest investments, putting your money in a CD means potentially missing out on higher returns from investments with some risk, such as stocks.
  • If rates fall, you could get a lower return when you reinvest shorter-term CDs.

Ultimately, your reasons for CD laddering will help you determine whether it is the best option for you.


Is a CD Ladder Right For Me?

A CD Ladder can be a great savings strategy for anyone. If you don’t want to risk investing in the stock market, you’re looking for a mid-term savings option, or you need to maintain some liquidity in your investments in retirement, a CD Ladder might be a good option for you. CD Laddering can also be used to save for specific goals such as a vacation, wedding, down payment on a house, or to build your emergency savings.

A Final Word: Some Tips to Protect Your Investment

The Fed’s interest rate hikes have made borrowing money more expensive, but the flip side is higher rates for savers. The renewed interest in CDs has led to attractive offers from both brick-and-mortar and online banks alike. However, an offer that seems “too good to be true” may in fact be a scam. Don’t just assume that a financial institution is legitimate–look them up on the FDIC’s BankFind database before sharing any personal information or transferring funds. Also, be weary of spoofed websites that impersonate legitimate institutions.


Start a CD Ladder today at Peoples Bank!

Looking for the best CD interest rates? Turn to Peoples Bank, the community bank you can trust for your CD Laddering savings strategy. Use our CD Ladder calculator to try out different options. To open a new CD account, visit one of our ten convenient locations in Northwest Iowa, Southwest Minnesota, and Southeast South Dakota. You can also call us with questions–we always take the time to find the best banking solutions for you.

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