A CD ladder is a strategy in which an investor divides the amount of money to be invested into equal amounts in certificates of deposit (CDs) with different maturity dates. This strategy decreases both interest rate and re-investment risks.


A Certificate of Deposit (CD) is an investment product that offers a fixed interest rate for a specified period of time. The invested funds, which are insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC), are locked in by the issuing bank until the maturity date of the CD. Maturity dates for these savings instruments are typically set at three months, six months, one year, or five years. The higher the term for which funds are committed, the higher the interest paid. To take advantage of the various interest rates offered for different periods, investors can follow a strategy known as the CD ladder.

A CD ladder strategy is followed by investors who value the safety of their principal and income. This strategy also provides investors with steady cash flow as the CDs will mature at different times. An investor that incorporates this strategy will allocate the same amount of funds across CDs with different maturities. This way, s/he benefits from the higher interest rates of longer-term CDs and does not have to repeatedly renew a short-term certificate of deposit that holds all his or her funds.

Investors that put all their funds in one CD may miss out on higher interest rates that may result while their funds are locked away. With a CD ladder, however, the investor can take advantage of short-term interest rates by reinvesting proceeds from maturing CDs into newer CDs with higher interest rates. On the other hand, if interest rates fall, CD holders still enjoy the benefits of the high interest rates that their existing long-term CDs provide. A CD ladder, thus, provides regular opportunities to reinvest cash as the CDs mature, while reducing interest rate risk.

In the event that an emergency ensues and an investor needs cash, the laddering strategy ensures that the investor consistently has a CD maturing, thereby, reducing liquidity risk.

For example, an investor has $40,000 to invest. Rather than putting the entire funds in one CD, he decides to put $10,000 in each of four certificates of deposit maturing in 6 months, 12 months, 18 months, and 24 months. The table below illustrates how a CD laddering strategy works:


After 6 months, the 6-mth CD matures and the investor reinvests the proceeds in a 24-mth CD. The time left to maturity for all the CDs is …

After another 6 months has passed, the original 12-month CD in the first column matures and the proceeds are reinvested in a 24-mth CD. At this time, the maturity term for all CDs is…

18 months from the initial date of purchase is here and the original 18-month bond matures. The investor purchases a 24-mth CD. After 18 months, the time to maturity on the CDs is…

Another 6 months later and 24 months in aggregate…

And the cycle of reinvesting proceeds continues semi-annually…

6-mth CD

24 months

18 months

12 months

6 months

24 months

12-mth CD

6 months

24 months

18 months

12 months

6 months

18-mth CD

12 months

6 months

24 months

18 months

12 months

24-mth CD

18 months

12 months

6 months

24 months

18 months



  1. Fixed-Rate Certificate of Deposit

    A certificate of deposit (CD) which has a set interest rate to ...
  2. Index-Linked Certificate Of Deposit

    A certificate of deposit (CD) with a return based on a specific ...
  3. Promotional CD rate (Bonus CD rate)

    A limited-time offer of a higher rate of return on a certificate ...
  4. Bond Laddering

    A portfolio management strategy and model for investing in fixed ...
  5. Zero-Coupon Certificate Of Deposit ...

    A certificate of deposit (CD) that is purchased at a largely ...
  6. Inflation-Linked Certificates of ...

    Federally insured debt securities that are similar to regular ...
Related Articles
  1. Managing Wealth

    Save Smart With A CD Ladder

    A CD Ladder allows you to stagger your investments and take advantage of higher interest rates.
  2. Investing

    How To Earn The Most From CDs When Interest Rates Are Low

    Certificates of deposit might not seem like a good place to keep your money when interest rates are low, but they do offer security and stability. And with laddering and studying promotional ...
  3. Investing

    Certificate of Deposit (CD)

    A certificate of deposit, or CD, is a common financial product sold by banks, thrift organizations and credit unions. This type of product is often called a time deposit. CDs are insured up to ...
  4. Retirement

    5 Sources of Income for Your Retirement

    Generating income without going to work tends to be a murky concept. Find out how it works.
  5. Investing

    Money market investments or CDs: Which are better?

    Find out which short-term savings vehicle, a money market account or a certificate of deposit (CD), is a better investment for your needs.
  6. Investing

    Getting Certificates of Deposit (CDs) in Emerging Markets: Risks and Rewards

    Learn about the risks and rewards associated with investing in a certificate of deposit (CD) offered by an emerging market and what to consider before buying.
  7. Investing

    Should CDs Be a Thing of the Past?

    Certificate of deposit rates remain low. Are there better alternatives?
  8. Investing

    CDs or Bonds: Which Investment is Better For You

    When choosing between CDs and bonds, investors who seek to maximize their returns but also want a large measure of safety should consider the following:
  1. Can certificates of deposit (CDs) lose value?

    CDs are FDIC insured, so they do not lose face value, though broker-issued CD accounts do carry risks. Read Answer >>
  2. How safe an investment is a certificate of deposit?

    Discover certificates of deposit, their basic makeup and numerous variations, and understand why they are some of the safest ... Read Answer >>
Hot Definitions
  1. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  2. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  3. Income Statement

    A financial statement that measures a company's financial performance over a specific accounting period. Financial performance ...
  4. Leverage Ratio

    A leverage ratio is any one of several financial measurements that look at how much capital comes in the form of debt, or ...
  5. Annuity

    An annuity is a financial product that pays out a fixed stream of payments to an individual, primarily used as an income ...
  6. Restricted Stock Unit - RSU

    A restricted stock unit is a compensation issued by an employer to an employee in the form of company stock.
Trading Center