A CD ladder answers a common dilemma with cash you will not need all at once: long CDs usually pay more, but they tie money up for years. Splitting the money into rungs that mature one year apart gives you some of each, a longer-term rate on most of the money and a maturity every year. FINRA describes laddering as a common way to manage that trade-off. Below is a complete five-rung ladder with its cash flows at stated rates, what to do at each maturity, how the ladder behaves when rates move and how it compares with a ladder of Treasury bills. If CDs are new to you, start with what a CD is; for every other low-risk option, see the safe investments hub.
What is a CD ladder?
A CD ladder is a set of equal-sized CDs with staggered maturities, so one comes due at regular intervals and can be spent or reinvested at the longest term.
Each CD is a rung. Three choices define the ladder: how much goes into each rung, how far apart the maturities are and how long the longest rung runs. The classic version uses five rungs one year apart. Once it is built, each maturing rung is replaced by a new five-year CD, so the ladder keeps its shape: after the first cycle, every rung earns a five-year rate, and you still get a rung back every year.
The ladder does not raise the rate on any single CD. What it changes is timing: it limits how much money you lock in at any one rate and how long you wait for cash.
How do you build a five-year CD ladder?
Divide the money into five equal rungs and buy one CD of each term from one to five years, so a rung matures at the end of every year.
The rates below are illustrative, chosen to rise gently with term; compare them with real offers before you build. Each CD is assumed to compound annually at its APY and pay everything at maturity.
Worked example: A $50,000 ladder in five rungs
Each rung gets $10,000. The value at maturity is $10,000 × (1 + APY) raised to the number of years, so the two-year rung is $10,000 × 1.041 ^ 2 = $10,836.81.
| Rung | Term | Illustrative APY | Matures | Value at maturity | Interest |
|---|---|---|---|---|---|
| 1 | 1 year | 4.00% | End of year 1 | $10,400.00 | $400.00 |
| 2 | 2 years | 4.10% | End of year 2 | $10,836.81 | $836.81 |
| 3 | 3 years | 4.20% | End of year 3 | $11,313.66 | $1,313.66 |
| 4 | 4 years | 4.25% | End of year 4 | $11,811.48 | $1,811.48 |
| 5 | 5 years | 4.35% | End of year 5 | $12,372.64 | $2,372.64 |
| Total | 4.18% simple average | $56,734.59 | $6,734.59 |
The starting average of 4.18% sits below the 4.35% five-year rate because four of the five rungs are shorter. That gap is the price of having a rung come due in year one; it closes as the short rungs are replaced.
What cash does a CD ladder pay out each year?
One rung's principal and interest each year: in this ladder, $10,400 after year one, rising to $12,372.64 after year five as longer rungs mature.
If you roll every maturity into a new five-year CD and five-year rates stay at 4.35%, the cash flows run like this. The last column is the simple average of the five rungs' APYs after that year's roll.
| End of year | Rung that matures | Cash that comes due | Rolled into | Value when the new CD matures | Average APY after the roll |
|---|---|---|---|---|---|
| 1 | 1-year CD | $10,400.00 | 5-year CD at 4.35% | $12,867.54 in year 6 | 4.25% |
| 2 | 2-year CD | $10,836.81 | 5-year CD at 4.35% | $13,407.99 in year 7 | 4.30% |
| 3 | 3-year CD | $11,313.66 | 5-year CD at 4.35% | $13,997.98 in year 8 | 4.33% |
| 4 | 4-year CD | $11,811.48 | 5-year CD at 4.35% | $14,613.91 in year 9 | 4.35% |
| 5 | 5-year CD | $12,372.64 | 5-year CD at 4.35% | $15,308.21 in year 10 | 4.35% |
| 6 | First rollover | $12,867.54 | 5-year CD at 4.35% | $15,920.54 in year 11 | 4.35% |
From year four on, the ladder earns the full five-year rate while still returning a rung every year. Any year you need money, you skip that year's roll and keep the cash; the other four rungs keep earning. To test other rates or terms for a single rung, the compound interest calculator reproduces each row.
What are your choices when a rung matures?
Roll it into a new longest-term CD, take the cash, shorten the ladder or move it elsewhere, deciding before the grace period ends.
- Roll to the far end. Buying a new five-year CD keeps the ladder intact. This is the default plan, but not the bank's default.
- Take the cash. The ladder shrinks by one rung, and the remaining rungs still mature on schedule.
- Shorten the ladder. If you will need the money sooner, roll into a shorter term, for example a two-year CD, so the rung returns when you need it.
- Move it elsewhere. A rung can go to high-yield savings, Treasury bills or another bank paying more for the term you want.
The trap is automatic renewal. If the one-year rung renews on its own into another one-year CD, the ladder quietly stops stepping out. Regulation DD requires a notice before an automatically renewing CD matures, at least 30 calendar days ahead for terms over a month, or 20 days before the end of a grace period of five days or more, and the CFPB notes that the new rate can be higher or lower than the old one. Put every maturity date in a calendar, and give instructions during the grace period. Grace periods, penalties and renewal rules are covered in detail in what is a CD.
How does a CD ladder hold up when rates rise or fall?
It adjusts gradually: each year one-fifth of the money reprices at the new rate, so the ladder's average yield drifts toward the market instead of jumping.
Suppose all CD rates move by one point right after you build the ladder and then stay there. New five-year CDs then pay 3.35% if rates fall or 5.35% if they rise.
| End of year | Rates fall 1 point | Rates flat | Rates rise 1 point |
|---|---|---|---|
| 1 | 4.05% | 4.25% | 4.45% |
| 2 | 3.90% | 4.30% | 4.70% |
| 3 | 3.73% | 4.33% | 4.93% |
| 4 | 3.55% | 4.35% | 5.15% |
| 5 | 3.35% | 4.35% | 5.35% |
Worked example: The first year after a rate cut
Rates fall one point just after the ladder is built. At the end of year one, the $10,400 from rung 1 goes into a five-year CD at 3.35% instead of 4.35%.
- New average APY: (4.10% + 4.20% + 4.25% + 4.35% + 3.35%) ÷ 5 = 4.05%
- A saver who had kept all $50,000 in one-year CDs would now be renewing everything at 3.00%
- Rung 1 alone is worth $10,400 × 1.0335 ^ 4 = $11,865.21 at the end of year five, against $12,331.14 had rates held
Over the full five years the pattern holds in every scenario. The table compares the ladder with two simpler plans for the same $50,000, counting CDs that have not matured yet at their accrued value.
| Value after five years | Rates fall 1 point | Rates flat | Rates rise 1 point |
|---|---|---|---|
| Roll one-year CDs (4.00% now, then 3.00% or 5.00%) | $58,526.46 | $60,832.65 | $63,206.33 |
| Five-rung ladder | $60,492.18 | $61,661.83 | $62,854.12 |
| One five-year CD at 4.35% | $61,863.18 | $61,863.18 | $61,863.18 |
The ladder never wins and never comes last. That is its point: it is a hedge against guessing wrong about rates, and it is the only one of the three plans that returns cash every year without a penalty.
When do long CD rungs stop paying extra?
When five-year CDs pay little or nothing more than one-year CDs, the long rungs add years of lock-up without extra yield.
The FDIC's national averages are 1.76% (FDIC, as of Nov 1, 2026) for 12-month CDs and 1.41% for 60-month CDs. In the October 2026 release the 60-month average was 0.35 point below the 12-month average, an inverted shape. Treasuries sloped the other way: on October 30, 2026 the 5-year par yield was 4.71%, 0.35 point above the 1-year's 4.36%. Averages are weighted by deposits and say little about any one bank's offers, but the same check applies to the rates in front of you.
If the extra yield for going from one year to five is small, consider what you gain from it. A shorter ladder, such as three rungs of one to three years, keeps most of the averaging with less lock-up. Treasury notes, which come in terms of 2, 3, 5, 7 and 10 years, are another way to reach past one year; see Treasury notes explained.
How does a CD ladder compare with a T-bill ladder?
A T-bill ladder suits money needed within a year, while a CD ladder reaches out to five years or more, with different rules on taxes, backing and early exits.
| CD ladder | T-bill ladder | |
|---|---|---|
| Longest rung | Five years or more | One year or less |
| Backing | FDIC or NCUA insurance up to the limit | Full faith and credit of the US government |
| State and local income tax | Taxable | Exempt |
| Leaving a rung early | Penalty set by the bank | Sell at a broker at market price; TreasuryDirect first requires a 45 calendar days hold |
| Minimum per rung | Set by each bank | $100, in $100 increments |
| Rolling | Bank renewal or a new CD you choose | Scheduled reinvestment or broker auto-roll into the same term |
Interest on bills is exempt from state and local tax under IRS rules, which matters more in high-tax states; T-bills vs CDs works through the after-tax comparison. The full mechanics of building and rolling a bill ladder, with week-by-week tables, are in how to build a T-bill ladder. Some savers combine the two: bills for the first year, CDs for the years after.
How to build a CD ladder, step by step
These steps build the five-rung version; the same sequence works for shorter ladders.
Choose the ladder's length and rung size
Match the longest rung to how long the money can stay put, and size each rung to what you may need in a year. Five rungs of $10,000 suit $50,000 that you may tap once a year.
Shop rates for every term
List the APY for one- to five-year CDs at a few insured banks, along with each CD's early-withdrawal penalty and any call feature. If five-year CDs pay little more than one-year CDs, consider a shorter ladder.
Open one CD per rung
Buy the five CDs on the same day, at one bank or several. Keep each bank's total, including accrued interest, within $250,000 per depositor, per insured bank, per ownership category, or see how to insure more than $250,000.
Set instructions for each maturity
Ask how each CD renews and record every maturity date and grace period. Where the bank allows it, ask for renewal into a five-year term, or plan to act during the grace period.
Roll or spend each rung as it matures
Each year, compare the renewal offer with other banks' five-year rates, then roll, shorten or spend. Brokered CDs pay out at maturity instead of renewing; see brokered CDs explained.
What are the risks of a CD ladder?
A ladder spreads out rate risk but keeps the other risks of CDs: penalties, inflation, insurance limits and the work of managing several maturities.
- Reinvestment risk. When rates fall, each maturing rung renews lower; the falling-rate column above shows the average sliding a little each year.
- Lock-up when rates rise. Long rungs keep paying their old rate, and leaving early costs the penalty in each CD's agreement, which can be larger on longer terms.
- Inflation. Consumer prices rose 3.74% in the 12 months to September 2026 by the BLS's CPI-U, so a five-year rung at 4.35% keeps about 0.6 point of real return before tax, and less if inflation rises. See real returns and inflation.
- Insurance limits. All rungs at one bank count together, and so does interest as it accrues.
- Calls. A callable rung can be redeemed early when rates fall, leaving a gap in the ladder just when replacing it is least rewarding.
- Missed maturities. An unattended rung can renew into the wrong term at a rate you did not choose.
- Tax timing. Interest on each rung is taxable as it is credited, and multi-year rungs that pay at maturity are taxed a year at a time under the original issue discount rules in IRS Publication 550.