A CD ladder divides your savings into equal portions placed in CDs of different maturities — typically 1, 2, 3, 4, and 5 years. When the shortest one matures, you reinvest it in the longest rung (e.g., a new 5-year CD), maintaining the ladder indefinitely.
Why ladder instead of buying one CD? A single long-term CD locks up all your money and leaves you exposed to early withdrawal penalties if rates rise or you need cash. A ladder gives you annual liquidity while still capturing the higher yields available at longer maturities.
The rate step-up advantage. Longer-term CDs typically pay higher rates. By spreading across maturities, you earn a blended rate higher than the shortest-term CD, while retaining regular access to maturing funds.
Reinvesting at maturity. The real power of a ladder is what you do at each maturity: if rates rise, you lock in the higher rate. If rates fall, only a fraction of your portfolio renews at the lower rate. Compare this to putting everything in a 1-year CD — you'd renew 100% at whatever rate is available that year.
FDIC coverage. CDs at FDIC-insured banks are covered up to $250,000 per depositor per institution. A large CD ladder may require spreading across multiple banks to stay within coverage limits.