Last week’s article focused on utilizing a high-yield savings account for your excess cash savings and emergency fund. This week, we will take a deeper dive into cash management with the concept of a CD ladder. Certificates of Deposit (CDs) can offer higher interest rates compared to savings accounts, and using a CD ladder strategy can help mitigate interest rate risk while maintaining liquidity and keeping savers disciplined to stay the course with shorter-term savings goals.

What is a Certificate of Deposit (CD)?

A CD is a savings account with a fixed interest rate and fixed maturity date. Typically, CDs offer higher interest rates than regular savings accounts because your money is locked in for a specific period. The longer the term, the higher the interest rate tends to be, but as we will see below that is not always the case.

Key Concepts

Interest Rate Risk: This refers to the risk that interest rates will rise after you have locked your money into a fixed-rate investment. If rates increase, you might miss out on higher returns available elsewhere. The opposite is true as well: If rates drop, you are locked into the currently higher rate. 

CD Ladder: A strategy where you divide your investment into multiple CDs with different maturity dates. This approach helps you take advantage of higher long-term rates while maintaining regular access to portions of your funds.

Building a CD Ladder

Let’s assume* the current average CD rates are:

  • 1-Year CD: 5.00% APY
  • 2-Year CD: 4.80% APY
  • 3-Year CD: 4.50% APY
  • 4-Year CD: 4.25% APY
  • 5-Year CD: 4.00% APY

With a $25,000 investment, you would divide this into five $5,000 CDs, each with different maturities.

At the end of each year, the matured CD is reinvested into a new 5-year CD, taking advantage of current rates. This rolling reinvestment helps hedge against interest rate fluctuations, ensuring that a portion of your investment is regularly refreshed at the best available rates. 

It is worth noting where current interest rates are across the 1 – 5 year timeframe compared to other periods of time. Typically, the longer the term, the higher the interest rate should be. This makes logical sense since the purchaser of the CD is taking on more interest rate risk by locking up their money for longer. However, as the rates above illustrate, that is not currently the case, with 1-year CDs offering 5.00% and 5-year CDs only offering 4.00%. This situation is referred to as an inverted yield curve. Many economists and investors believe an inverted yield curve is a reliable indicator of an upcoming recession. Since Central Banks typically cut rates during a recession to encourage spending, lowering longer-term rates is the market’s way of pricing a recession into the near future. I have no clue when the next recession will arrive, how long it will last, and what impact it will have on people, so my advice is to just stay educated and informed and then act on the information you do have today in a way that best positions your financial plan.  

Comparison: High-Yield Savings Account vs. 5-Year CD Ladder


For simplicity’s sake, this example assumes the unlikely scenario that the interest rate on both high-yield savings and CDs will remain the same over the course of five years. 

High-Yield Savings Account:

  • Initial Investment: $25,000
  • Interest Rate: 4.00% APY
  • Total Interest Earned in 5 Years: $5,416.32
  • Total Value After 5 Years: $30,416.32

5-Year CD Ladder:

  • Initial Investment: $25,000
  • Average Annual Return: Approximately 4.51% APY (blended rate)
  • Total Interest Earned in 5 Years: $6,178.63
  • Total Value After 5 Years: $31,178.63

Benefits of a CD Ladder Strategy

  1. Higher Interest Rates: CDs generally, but not always, offer better rates than high-yield savings accounts.
  2. Regular Access to Funds: The laddering strategy provides liquidity as CDs mature regularly.
  3. Reduced Interest Rate Risk: Staggered maturities protect against fluctuating rates, ensuring that not all funds are locked in at a single rate.
  4. Predictable & Safe Returns: CDs offer guaranteed returns, making them a low-risk investment. They can also typically be covered under the same FDIC coverage that a high-yield savings account offers. 


While high-yield savings accounts are excellent for maintaining liquidity and earning competitive interest, a CD ladder strategy can enhance your returns with higher, guaranteed rates. By diversifying across multiple CDs with staggered maturities, you can hedge against interest rate risk while ensuring regular access to your funds. This balanced approach provides a powerful tool for conservative investors seeking safety and growth.

A CD ladder could be a great tool for both younger and older investors. Younger investors could use a CD ladder as a smart way to save toward a shorter-term goal and maintain discipline since CDs are “locked up” compared to a standard savings account. Older investors might look to a CD ladder to generate a steady and more predictable source of income while preserving their principal balance over time. 

There aren’t always clear “right or wrong” answers to topics like how best to optimize your cash; that is where the art of financial planning comes in. Be sure to educate yourself to make the best decision for your circumstances.


*Investopedia: Best CD Rates for June 2024​ (Investopedia)​

*NerdWallet: Best CD Rates for June 2024​ (NerdWallet: Finance smarter)


The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.

This content not reviewed by FINRA

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