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Personal Finances

What is a CD Ladder?

There are numerous investment and savings strategies. Depending on your goals, financial situation, and the phase of life you are in (retiring vs. taking your first post-college job, for example), there is a dizzying array of options.

You can invest in mutual funds, individual stocks, precious metals, government bonds, real estate, or cryptocurrency. Before making a decision, you need to carefully consider the risks, benefits, and challenges of each investment.

A popular strategy is a “CD ladder.” A CD ladder is not a specific product but rather a strategy that utilizes the short-term gains of a CD (certificate of deposit) to create strong long-term financial growth while still retaining access to liquid cash. You may already know the basics of Certificates of Deposit – if that’s the case, click here to skip to our CD Laddering strategy. If not, read on to understand more about how CDs work.

What Are CDs?

To understand CD ladders, we need to back up and examine CDs themselves. One of the most predictable and virtually risk-free options for financial investing is a product known as the CD, or certificate of deposit, which is offered by banks, including Amerant Bank, and financial institutions all across the country. These are savings products that earn interest on a lump sum of cash for a fixed period. During that time, the owner of the cash is unable to access the money.

A CD is like a savings account, but it offers higher interest rates because you agree to keep your money in the account for a certain period of time. For example, you may invest $1,000 into a CD that has an annual interest rate of 4%. At the end of the single year, that $1,000 earned $40 in additional money (4%) and the owner can withdraw the full $1,040. This may not sound tremendous, but it’s far more than the 0.5% or 1% you might earn from a regular savings account.

CDs can range in total time, but most are between one and five years. Each institution is different, but the longer the term, the more interest you will earn (not just in total, but the interest rate will be higher as well).

A CD ladder is simply a strategic use of CDs. With this strategy, investors place a certain amount in multiple CDs ranging from one year to five years. Each year, one of the CDs matures to completion and the investor takes the initial cash plus whatever interest has been earned, typically reinvesting it in another time-specified CD (1 to 5-year). The intervals are dependent on the maturity of the individual CDs.

How Do CD Ladders Work? An Example in Action

Let’s suppose you have exactly $10,000 to invest. You decide to place it all in a CD ladder. You create five CD accounts, one each for one-, two-, three-, four-, and five-year terms, and divide your $10,000 evenly between the five accounts.

The strategy will look like this:

  • One-year CD: $2,000
  • Two-year CD: $2,000
  • Three-year CD: $2,000
  • Four-year CD: $2,000
  • Five-year CD: $2,000

For each of the next five years, you will have a CD that matures. At the end of the first year, you withdraw the cash and interest from your one-year CD. You then invest the cash in a new five-year CD, which will mature one year after the five-year CD that you originally created.

At the end of the second year, you withdraw the money from your two-year CD and reinvest it in another five-year CD. This new CD will expire two years after the original five-year CD.

With this strategy, you have an annual CD to reinvest or spend as you see fit. By rolling the original investment plus the interest, you can start compounding the investment to create strong and reliable long-term gains.


What Are the Benefits of a CD Ladder?

Compared to other investment options, such as mutual funds or single stocks, a CD ladder offers a guaranteed rate of return. Your money will not disappear (a legitimate, if rare, risk of investing), and you will receive a locked-in interest rate.

A CD ladder is more stable than traditional stock market investing because it leverages the inherent stability of individual CDs. It also offers higher returns than a savings account. A CD ladder is a good balance between security and return on investment.

CDs and CD ladders are good options when interest rates are high, especially when you can reinvest previous CD money in ever-rising CD rates.

While CDs are not completely liquid, like a traditional savings account, you can access your money in a CD ladder annually. This makes a CD ladder a good option for people who need access to some of their money each year, but who also want to earn higher interest rates than a savings account.

Variables to Consider when Choosing a CD

While there are advantages, you should consider a few factors before investing in a CD ladder.

Return Margins

Compared to the stock market or bonds, CDs typically offer lower rates of return. While the exact rate of return from stocks or bonds can vary, the average rate of return on stocks has been as high as 10%. Stocks are almost certain to offer higher returns than CDs over the long term.


Inflation is an ever-present concern for wealth builders. If your cash sits in a savings account, the growth may not outpace inflation. The money declines in purchasing power, as inflation continues to reduce its value compared to goods and services. While a CD ladder brings around 4% annual interest currently, this is only slightly higher than the average rate of inflation.

Interest Rates

The return from a CD, which directly impacts the return on your ladder, is tied to interest rates. Currently, we are in a market with relatively high interest rates, so CDs are more attractive. However, interest rates may go down, which would make them less profitable. If interest rates begin to decline, you may be reinvesting cash that could perform better elsewhere. This can be seen as another potential advantage to CD Ladders. With staggered maturity dates less of your money is locked up long-term.

CD Ladders: A Quick Summary

A CD ladder is a stable and reliable investment option with virtually no risk. By taking advantage of the benefits of a CD account, you can create an annual return that can be reinvested, spent, gifted, or used for any purpose you see fit.

Although CD ladders do not have the potential for high returns, which can be realized from successful market investments, they bring stability and predictability to your portfolio.

Because it is impossible to lose money with a CD ladder, this investment strategy may be ideal for people who cannot afford to lose their investment nest egg. For example, people in or nearing retirement may benefit from placing some of their savings in a CD ladder.

Is a CD Ladder Right for You?

Do you have questions about CD ladders? Amerant Bank is here to answer your questions and help you make the best decision for your future.

Whether you have an account with us or not, we’d be proud to offer our advice and service so you can build a strong, profitable, reliable financial foundation.

Learn more at amerantbank.com and follow Amerant on Facebook, Twitter, Instagram, and LinkedIn @AmerantBank.

Amerant Editorial Team
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