How to Build a CD Ladder

Posted in Products
August 2nd, 2010 at 9:39 am by Ally

There’s really no way around it; the best interest rates at any given time tend to come with the longest-term CDs. Five-year CDs generally pay more than two-years, two-years generally pay more than one-years, and so on.

Does that mean that earnings-minded customers should load their savings entirely into the single highest-yield, longest-term CD available? Not necessarily. The result might be great if you make the CD purchase at a time when interest rates are peaking, but it’s more likely that rates will fluctuate – possibly rising – as you wait for that single CD to mature.

Many customers have found a way to hedge against fluctuating CD rates in hopes of getting the best overall return, long-term. It’s called CD laddering. Basically, it involves staggering CD purchases over time, so that eventually a portion of the total deposit is always close to maturity, and all of it is earning a long-term rate.

Sound complicated? It’s really not. Let’s break it down into simple steps to show how a basic ladder might work for you.

1.    Decide on a total amount to deposit in your CD ladder. Ally sets no minimum deposit for CD purchases, so any amount can work. For this explanation, we’ll go with $5,000 because it’s a nice, round number, and we like easy math.

2.    Decide on a time frame for the top rung of your ladder – the rung farthest out of reach. Ask yourself: What’s the maximum length of time that I’m willing to lose access to any portion of my money? We’ll go with five years. That means the longest-term CD – and eventually all CDs – in this ladder will be five-year CDs.

3.    Put one-fifth of your total deposit – or $1,000 – into a five-year CD to start earning those long-term rates.  For now, consider shorter-term CDs for the rest of your total deposit. You could opt to buy several CDs of different terms – a four-year, a three-year, a two-year and a one-year.

4.    Each year, as one of your shorter-term CDs matures, move that fifth of your total deposit into a new five-year CD, placing it at the top of your ladder. At the same time, you’ll be watching previous five-year CDs move a year closer to maturity, or down one rung.

5.    Five years after you start, your first five-year CD will reach maturity. At that point, you can cash it in, or let it ride. As long as you keep the ladder intact, all of your CD savings will be earning a long-term rate. But you’ll never be more than a year away from being able to access one-fifth of it, should you want to withdraw.

But don’t feel tied to this example. Maybe you think it’s wiser to stick to CD terms of two years or less during times when interest rates nationwide are relatively low – as they have been for a while now. If so, you might want to build your ladder with Ally’s Raise Your Rate CDs and stagger them six months apart instead of a full year. We’re partial to the way this product lets existing customers take advantage of new rates, when rates rise. Or maybe you want to throw a no-penalty CD into the mix, reserving complete freedom to withdraw at any time after seven days post-account opening without losing a penny to penalties.

Investigating the different combination’s and options for your CD ladder is a great way to gain confidence in your ultimate choice. To help you with your research, here are a few articles and resources we like:

Creating a CD Ladder for Your Emergency Fund
How (and Why) to Create a CD Ladder
A CD Ladder Calculator

Know of other resources, have a question, or want to share an idea of your own? Let us know, using the comment feature below. In the meantime, happy laddering!

Responses to this post (17 comments)

  1. 8/19/2010
    9:29 am
    Harry says:

    I have $40,000 to build a CD ladder. How do I get started?

  2. 9/2/2010
    9:10 am
    bernard powell says:

    do you offer loans on your cd?

    • 10/6/2010
      10:37 am
      Ally says:

      Hi Bernard, we don’t actually offer any personal loans on our CDs at this time. If you’ve got any other questions, we’re available 24/7 at 1-877-247-ALLY (2559) or through our site at (just click the Contact Us button on the top and you can even chat with one of our Customer Care Associates).

  3. 11/14/2010
    9:03 am
    Dan says:

    I don’t have a huge chunk of money to invest immediately. How can I build a CD Ladder with, say, 1000 dollars available to invest per month? I’d like to get a CD maturing monthly. Although I like the idea of longer term CDs, I think I’d be more comfortable with just a one-year term.

    • 11/18/2010
      3:58 pm
      Ally says:

      Great question, Dan! Take a look at this CD laddering post from here:

      The article illustrates CD laddering even with a small amount of money (and even has a handy infographic that we’ve posted on Straight Talk before). If you ever have any questions on opening a CD, we are here for you 24/7 with live customer care at 1-877-247-ALLY (2559).

  4. 11/15/2010
    4:39 pm
    Elaine says:

    I just turned 70 and therefore at 70 1/2 I will have to withdraw funds from my IRA’s (I think it has to be 10%). If I roll over my IRA’s to Ally now, how will this reduction be handled?

    • 11/17/2010
      12:06 pm
      Ally says:

      Thanks for your question, Elaine! IRA is definitely something that we are looking to add to our portfolio, based on feedback we have heard from you and other customers. While we don’t have a date to share today for when that will be available, we hope to have one in the near future. Stay tuned as we will be sure to update this space and with any news!

  5. 2/4/2011
    2:46 pm
    DMV says:

    I just built a CD ladder and the lowest rung is 3 months. Will I be notified shortly before it matures so I can then buy a new CD with that matured one? I fear it will just roll over into another 3 month CD.

    • 2/4/2011
      6:18 pm
      Ally says:

      Congrats on building your CD ladder and thanks for your comment! You should receive a maturity notice in the mail about 30 days before your CD matures. We’ll also send you a reminder email. Should you have any additional questions, feel free to give us a call 24/7 at 1-877-247-ALLY(2559).

  6. 2/15/2011
    1:45 pm

    [...] High Yield CD, so that money is set aside collecting interest at a competitive rate. You can also ladder your CDs for maximum earning potential to help take some of the sting out of those wedding [...]

  7. 2/21/2011
    5:10 pm

    [...] For us, this quote is all about enjoying the benefits of hard work and being inspired by the successes of others. It even reminded us a bit of Kevin Cupp and his story about using Ally Bank savings products to save for his dream car. Ally Bank understands that financial planning is a means to an end, which is why our products have some of the most competitive rates. If you have a long term savings goal that you’re trying to reach, take a look at the great rates and variety of benefits that come with our CDs. Helping you to reach inspiring levels of personal financial success, they can even be laddered over time. [...]

  8. 2/22/2011
    10:08 am

    [...] to work into your later years as potential ways to live well. They also mention the importance of CD laddering and how it can help you bring in $12,000 annually. In the end, the choices will vary from person to [...]

  9. 4/19/2011
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    [...] about how spring is the perfect time to get your financial house in order. Whether it’s laddering your CDs or starting an emergency fund, there are all sorts of extra steps you can take to build a secure [...]

  10. 5/2/2011
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    [...] on the Ally Bank Straight Talk Blog, we talk a lot about CDs and how they could benefit you financially. Many people have savings goals that are focused on the long-term, and some consider CDs to be the [...]

  11. 6/11/2011
    12:25 pm
    Suggestion says:

    It would be a really nice feature to be able to preset what a maturing cd will renew as. For example, I purchase a 3 month cd and preset it to renew as a 9 month cd, making it possible to automate the ladder’s growth in height.

    • 6/11/2011
      12:30 pm
      Ally says:

      Thanks for the suggestion! We’ll be sure to pass this along to our team over here.

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