A lot of people hear “CD ladder” and assume it’s only for folks with big bucks to invest. But the truth is, you can build one with just $5,000.
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You’ll earn more interest vs. keeping that money in a plain old savings account. And you won’t keep all your money locked up for years.
If you’re sitting on a few thousand bucks right now, here’s a simple three-rung CD ladder strategy to put your money to work.
First, what’s a CD ladder?
A CD ladder is where you split up your money into chunks, and then put each of those chunks into a different CD.
The goal is to spread out your money over different terms, so bits of your cash become available at regular intervals.
This gives you two big advantages:
-
Higher APYs than savings accounts
-
Periodic access to your money without early-withdrawal penalties
It’s a win-win if you want to grow your savings without having to wait years to tap them.
A simple three-rung CD ladder with $5,000
Here’s an example.
Using today’s best CD rates, let’s split $5,000 across a 1-year, 2-year, and 3-year CD term. Here is what that might look like and how much interest would be earned:
|
CD Term |
Deposit |
APY |
Interest Earned |
|---|---|---|---|
|
1 Year |
$1,500 |
4.50% |
$67 |
|
2 Years |
$1,500 |
4.25% |
$127 |
|
3 Years |
$2,000 |
4.00% |
$240 |
Data source: Author’s calculations.
At minimum, you’d earn a total of $434 over three years. But you could earn more if you continued to re-invest each year.
When the 1-year CD matures, you can either cash out or roll it into a new 3-year CD. Then, repeat each year. Eventually, you’ll have an ongoing ladder where one CD matures each year, but all are earning the highest long-term rates available at the time.
Choosing the right bank is pretty important. Ideally you want to get all your CDs from a single bank that has top rates, low minimum deposits, and a variety of term lengths. To get started, check out our picks for the best CD rates available right now and build your own ladder in minutes.
How to get started
1. Decide how much to invest and how to split it up
You can split your money evenly, or pick a different amount for each CD term. There’s no right or wrong way to do it — your strategy should be based on when you want access to your cash again.
2. Shop around for the best CD rates
The goal is to get the most bang for your buck while keeping your money safe and secure. Look for strong APYs, low minimums, and enough term variety to fit your ladder. Make sure the bank is FDIC insured for peace of mind.
3. Open your CDs and track maturity dates
Once you’ve picked your terms and provider, open your CDs and start earning that interest! Be sure to set reminders for when each CD matures so you can decide whether to cash out or reinvest.
Ready to give it a shot? Start by comparing today’s top CD rates and see how far $5,000 can go.
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