- What is a CD ladder?
- A CD ladder splits a lump sum across multiple CDs with staggered maturity dates — for example, 1-year, 2-year, 3-year, 4-year, and 5-year CDs. As each CD matures, you reinvest in a new long-term CD. This gives you both liquidity (a CD maturing each year) and access to higher long-term rates.
- Why not just put everything in the longest-term CD?
- Locking all your money in a 5-year CD means you cannot access it without penalties if you need funds or rates improve. A ladder provides partial liquidity every year while still capturing most of the yield benefit of longer terms.
- What happens when a CD in the ladder matures?
- You reinvest the matured CD into a new long-term CD (typically matching the longest rung in your original ladder). Over time, all your CDs will be in the longest term, maximizing yield while maintaining the annual liquidity cycle.
- Are CDs FDIC insured?
- Yes. CDs at FDIC-insured banks are covered up to $250,000 per depositor per institution. If your ladder total exceeds that at a single bank, spread across multiple banks or use credit unions (which are NCUA-insured up to the same limit).
