A CD ladder splits your savings across multiple CDs with staggered maturity dates, earning higher returns than a savings account without locking everything away for years. As each CD matures, you reinvest into a new long-term CD — keeping the ladder running indefinitely.
This guide builds a complete ladder from scratch using current 2026 rates. We cover the math, compare CD types, list early withdrawal penalties, and explain when laddering outperforms high-yield savings accounts. If you have $5,000+ beyond your emergency fund, this strategy deserves attention.
What Is a CD Ladder and How It Works
A certificate of deposit (CD) is a time-locked savings product — you deposit money for a fixed term, earn a guaranteed rate, and agree not to withdraw until maturity. CDs generally pay higher rates than savings accounts because the bank can count on having your money for a specific period. A CD ladder takes this concept and adds structure. Here is the basic framework for a 5-rung ladder with $25,000:
- Rung 1: $5,000 in a 1-year CD at 4.50% APY
- Rung 2: $5,000 in a 2-year CD at 4.25% APY
- Rung 3: $5,000 in a 3-year CD at 4.10% APY
- Rung 4: $5,000 in a 4-year CD at 4.00% APY
- Rung 5: $5,000 in a 5-year CD at 3.90% APY
After 12 months, your 1-year CD matures. You reinvest the $5,225 (principal plus interest) into a new 5-year CD. Twelve months later, your original 2-year CD matures, and you repeat. After five years, every rung is a 5-year CD, but one matures every year — giving you annual liquidity while earning long-term rates. Your weighted average yield is higher than a 1-year CD alone, and you never have all your money locked away for five years.
Current CD Rates by Term Length
The following table shows representative CD rates from top online banks as of February 2026. Note the inverted yield curve — 1-year CDs currently pay more than 5-year CDs, typical when the market expects further Federal Reserve rate cuts.
| Term | Ally Bank | Marcus | Discover | Bread Savings | Synchrony |
|---|---|---|---|---|---|
| 1 year | 4.50% | 4.40% | 4.35% | 4.65% | 4.50% |
| 2 years | 4.15% | 4.10% | 4.00% | 4.30% | 4.20% |
| 3 years | 4.00% | 3.95% | 3.85% | 4.10% | 4.00% |
| 5 years | 3.85% | 3.80% | 3.75% | 3.95% | 3.85% |
Bread Savings consistently leads across all terms, followed by Ally and Synchrony. When building a ladder, you do not need to use the same bank for every rung — pick the best rate for each term.
Step-by-Step: Building a $25,000 CD Ladder
Here is a 5-rung ladder using $25,000, selecting the highest-rate bank for each term:
| Rung | Amount | Term | Bank | APY | Interest at Maturity |
|---|---|---|---|---|---|
| 1 | $5,000 | 1 year | Bread Savings | 4.65% | $232.50 |
| 2 | $5,000 | 2 years | Bread Savings | 4.30% | $439.25 |
| 3 | $5,000 | 3 years | Bread Savings | 4.10% | $640.37 |
| 4 | $5,000 | 4 years | Bread Savings | 4.00% | $849.29 |
| 5 | $5,000 | 5 years | Bread Savings | 3.95% | $1,069.05 |
Total interest across all five rungs: $3,230.46. The blended average APY is 4.20% — higher than the 5-year rate alone (3.95%) and close to the 1-year rate (4.65%). After Year 1, reinvest the matured $5,232.50 into a new 5-year CD, and a rung matures every year thereafter.
Five-Year Earnings Projection
Compare the five-year outcome of four strategies with $25,000:
| Strategy | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Total Interest |
|---|---|---|---|---|---|---|
| CD Ladder (blended 4.20%) | $1,050 | $1,094 | $1,140 | $1,188 | $1,238 | $5,710 |
| Single 5-Year CD (3.95%) | $988 | $1,027 | $1,067 | $1,110 | $1,153 | $5,345 |
| HYSA at 4.20% (variable) | $1,050 | $950* | $875* | $825* | $800* | $4,500* |
| Traditional Savings (0.45%) | $113 | $113 | $114 | $114 | $115 | $569 |
*HYSA earnings assume a gradual rate decline from 4.20% to 3.00% over five years as the Fed normalizes rates. The ladder earns $365 more than a single 5-year CD, approximately $1,210 more than the HYSA scenario — while still providing annual liquidity — and $5,141 more than a traditional savings account.
CD Types: Standard, No-Penalty, Bump-Up, and Brokered
- Standard CDs: Fixed rate, fixed term, early withdrawal penalty. These form the core of most ladders because they offer the highest guaranteed rates. Best for rungs where you will not need the money before maturity
- No-penalty CDs: Allow full withdrawal before maturity without penalty. Rates are 0.25%-0.50% lower than standard CDs. Ally Bank's 11-month no-penalty CD at 4.00% APY is a popular choice for the shortest ladder rung
- Bump-up CDs: Allow a one-time rate increase if the bank raises rates during your term. Marcus offers a 20-month bump-up CD. Starting rate is 0.15%-0.30% below standard. Most useful in rising-rate environments
- Brokered CDs: Purchased through a brokerage (Fidelity, Schwab, Vanguard) and tradable on a secondary market. You can sell before maturity without a bank penalty — though sale price depends on market conditions. Sometimes offer higher rates and are still FDIC-insured
Early Withdrawal Penalties by Bank
Early withdrawal penalties (EWPs) vary significantly by bank — some are mild, others can eat into your principal:
| Bank | CDs Under 12 Months | 1-3 Year CDs | 3-5 Year CDs | 5+ Year CDs |
|---|---|---|---|---|
| Ally Bank | 60 days interest | 150 days interest | 150 days interest | 150 days interest |
| Marcus | 90 days interest | 270 days interest | 365 days interest | 365 days interest |
| Discover | 3 months interest | 6 months interest | 9 months interest | 18 months interest |
| Synchrony | 90 days interest | 180 days interest | 365 days interest | 365 days interest |
| Bread Savings | 90 days interest | 180 days interest | 365 days interest | 365 days interest |
Ally Bank has the most lenient penalties — 150 days of interest maximum regardless of term. Marcus and Synchrony charge up to 365 days on long-term CDs. On a $5,000 CD at 4.00% APY, Ally's penalty costs $82 vs Marcus's $200. Factor penalty structures into your bank selection if early withdrawal is possible.
CD Ladder vs HYSA vs Bond Ladder
CD ladder vs HYSA: A HYSA gives instant liquidity and zero penalties — superior for emergency funds. But HYSA rates are variable and decline when the Fed cuts. A CD ladder locks in today's rates. Keep 3-6 months in a HYSA (see our emergency fund guide), then ladder surplus into CDs.
CD ladder vs bond ladder: A bond ladder uses Treasury or corporate bonds with staggered maturities. Bond interest can be state-tax-exempt and bonds offer secondary market liquidity, but prices fluctuate. CDs win for simplicity; bonds may be preferable for portfolios over $100,000.
CD ladder vs T-bills: Treasury bills (4-52 week maturities) yield 4.20%-4.50% and are state-tax-exempt. Functionally similar to a short-term CD ladder. Buy at TreasuryDirect.gov or through a brokerage.
When CD Laddering Makes Sense
- Falling rates (current 2026 environment): CD ladders shine brightest here. You lock in today's rates before they drop. The Federal Reserve cut rates in late 2024 and 2025, and further cuts are expected — making now an excellent time to build a ladder
- Stable rates: Laddering still provides value through annual liquidity and higher average yields than short-term CDs alone. The discipline of a ladder also prevents procrastination in reinvesting
- Rising rates: The one environment where ladders can underperform a HYSA. Locked-in rates become below-market. Mitigate with bump-up CDs, shorter ladders (3-rung), or keeping more in a HYSA until rates plateau
Mini-Ladders and Short-Term Variations
3-month mini-ladder: Three CDs at 3, 6, and 9 months — one matures quarterly. 6-month ladder: Four CDs at 6, 12, 18, and 24-month terms for down payment or car fund goals. Barbell strategy: 50% short-term (6-12 months) and 50% long-term (4-5 years), maximizing yield while keeping half accessible.
Common CD Laddering Mistakes to Avoid
- Auto-renewal at a worse rate: Most banks auto-renew matured CDs at the current rate. If you miss the 7-10 day grace period, your money gets locked in again — possibly at a lower rate. Set calendar reminders for every maturity date
- Laddering your emergency fund: Your emergency fund should remain in a liquid, penalty-free account. Only ladder money you will not need before the shortest rung matures
- Ignoring penalty structures: Choosing a bank solely for the highest APY without comparing penalties can cost more than the rate advantage. Ally's lenient penalties make it a safer choice even at 0.10% lower APY
- Building too many rungs: A 10-rung ladder with $500 per rung creates administrative burden without meaningful yield advantage. Five rungs balances optimization with simplicity
- Using one bank for everything: Shop each term separately for the best rate. Managing multiple bank relationships costs nothing extra
For budgeting frameworks to determine how much to allocate to a CD ladder versus other goals, see our personal finance hub.
Frequently Asked Questions About CD Laddering
A CD ladder divides savings across CDs with staggered maturity dates — five $5,000 CDs at 1, 2, 3, 4, and 5-year terms. As each matures, reinvest into a new 5-year CD for annual access while earning long-term rates.
You can start a basic ladder with as little as $2,500 (five $500 CDs), but $5,000-$10,000 is more practical. Many online banks have no CD minimums. The strategy becomes most worthwhile at $15,000+ because the interest rate advantage over a HYSA generates meaningful dollar returns at that level.
Early withdrawal triggers a penalty that varies by bank and term: 60-90 days of interest for short-term CDs, 150-365 days for longer CDs. Ally Bank has the most lenient penalties (150 days max). The penalty can eat into principal if the CD has not been open long enough. No-penalty CDs exist but pay lower rates.
CD rates are in the 3.75%-4.90% range in early 2026, trending down from the 2023-2024 peak of 5.00%-5.50%. The Federal Reserve's rate trajectory is the primary driver. If the Fed continues cutting, CD rates will decline further — making now a good time to lock in current rates through a ladder strategy.
It depends on your needs. A HYSA offers full liquidity with zero penalties — better for emergency funds. A CD ladder locks in rates and protects against future rate declines — better for surplus savings. The optimal approach is keeping 3-6 months of expenses in a HYSA and laddering additional savings into CDs.
Key Takeaways
- A CD ladder splits savings across CDs with staggered maturities (1-5 years), earning a higher blended yield while providing annual liquidity. A $25,000 ladder at current rates earns approximately $5,710 over five years.
- Current 2026 CD rates range from 3.75% (5-year) to 4.65% (1-year). The inverted yield curve means shorter CDs pay more, but a ladder protects against rate declines on reinvestment.
- Always compare early withdrawal penalties. Ally charges 150 days of interest maximum; Marcus charges up to 365 days — a difference of hundreds of dollars on a $5,000 CD.
- No-penalty CDs, bump-up CDs, and brokered CDs offer flexibility. No-penalty CDs work well for the shortest ladder rung or as a HYSA alternative.
- The falling-rate environment in 2026 makes this an ideal time to build a ladder. Locking in current rates before further Fed cuts protects your earnings for years.
- Do not ladder your emergency fund. Keep 3-6 months liquid in a HYSA. Only ladder surplus savings you will not need before the first rung matures.