How a CD ladder works: a $25,000 example, month by month

A CD ladder splits your savings into several certificates of deposit with different terms, so one matures every year (or every few months) instead of all your money being locked up until one date. Every figure below comes from our CD ladder calculator. The rates are examples: use the ones your bank offers.

Building the ladder

Take $25,000 and open five $5,000 CDs on October 1, 2026, with terms of 1, 2, 3, 4 and 5 years:

CD	APY	Matures	Worth then	Interest
1 year	4.10%	Oct 1, 2027	$5,205.00	$205.00
2 years	3.90%	Oct 1, 2028	$5,398.17	$398.17
3 years	3.85%	Oct 1, 2029	$5,600.60	$600.60
4 years	3.80%	Oct 1, 2030	$5,805.02	$805.02
5 years	3.90%	Oct 1, 2031	$6,054.71	$1,054.71

The average APY is 3.91%. Each value is the amount × (1 + APY)^(days ÷ 365): a year at 4.10% turns $5,000 into $5,205.00. Banks compound daily or monthly, so their figures can differ by a few cents or dollars.

Rolling it over

When the 1-year CD matures in October 2027, you have a choice: spend the $5,205.00, or put it into a new 5-year CD. If you roll every maturing CD into a 5-year CD, the ladder keeps its shape: after the first five years, every CD you hold is a 5-year CD, and one still matures every October. At 3.90% for the rollovers, the October 2032 maturity is worth $6,303.61 and the one in October 2036 is worth $7,332.67.

After 10 years, on October 1, 2036, the whole ladder is worth $36,638.66.

Ladder vs savings account vs one long CD

• Savings account at 3.50%, the rate unchanged for 10 years: $35,274.94. The ladder is $1,363.72 ahead.
• Everything in one 5-year CD at 3.90%, rolled over at 3.90%: $36,663.34. That's $24.68 more than the ladder, the price of having $5,000 or more come free every year instead of every five years.

The comparison depends on the rates staying put, and they won't. If savings rates fall to 2.00% and you can only roll over at 2.50%, the ladder ends at $33,322.17 against $30,479.82 in savings: $2,842.35 ahead, because the first five years were locked in at the higher rates. If rates rise instead, the ladder catches up more slowly than a savings account, but one CD matures every year to reinvest at the new rate.

A shorter ladder: one CD every three months

For money you may need within a year, space the CDs three months apart: $10,000 in four $2,500 CDs of 3, 6, 9 and 12 months at 4.20%, 4.20%, 4.10% and 4.10%. The first matures on January 1, 2027 at $2,526.06; then one comes due every quarter. Rolled into 12-month CDs at 4.10%, it's worth $10,839.96 after two years, against $10,713.26 in savings at 3.50%.

What to check before you build one

• Early-withdrawal penalty. Often a few months of interest. On a $5,000 2-year CD at 3.90% with a 6-month penalty, cashing out early costs $97.50; in the first months that can be more than the interest earned so far.
• What happens at maturity. Many CDs renew automatically into the same term at the bank's current rate after a short grace period. Note each maturity date so you can decide in time.
• Taxes. CD interest is taxed as ordinary income. On CDs longer than a year the bank usually reports interest each year on Form 1099-INT, even though you don't receive it until maturity.
• Insurance. FDIC (banks) and NCUA (credit unions) insurance covers up to $250,000 per depositor, per institution, per ownership category.

The calculator shows any ladder of up to 10 CDs with any spacing. The spreadsheet also lists every maturity over up to 30 years and tracks the CDs you already hold: value today, penalty if you cash out, days left, and interest for each tax year.