How to Adjust Your CD Ladder When Rates Change

Quick Answer

When interest rates change, it may make sense to revisit your CD ladder to ensure your investments are still competitive and aligned with your goals. When rates go up substantially, it can sometimes be worth selling your CDs early, even given potential penalties.

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If you have a CD ladder, you may need to adjust your strategy when interest rates are high or leveling off. Whether you should make a change depends on your goals and when you want access to the money in your certificates of deposit.

A CD ladder consists of at least three "rungs" of CDs with staggered maturity dates. So, rather than having 100% of your money inaccessible until a single CD matures, you can have portions of it available at intervals you choose.

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How a CD Ladder Works

Suppose you have $5,000 to invest. One way to build a CD ladder would be to divide your money among five CDs, with maturities a year apart. You could also get short-term CDs, of say, three, six, nine and 12 months.

Here's how you might invest $5,000 in a five-year ladder. This table reflects rates as of late November 2023.

Five-Year CD Ladder Example
1-year CD 5.3% $1,000
2-year CD 4.85% $1,000
3-year CD 4.4% $1,000
4-year CD 4.2% $1,000
5-year CD 4.1% $1,000

And here is what a one-year ladder might look like (percentages are annual percentage yields (APYs) at two institutions, as of late November):

One-Year CD Ladder Example
3-month CD 3% $1,250
6-month CD 5% $1,250
9-month CD 5.05% $1,250
12-month CD 5.10% $1,250

Alternative structures include putting half of your savings in short-term CDs and half in long-term ones, or giving CDs bought at different times the same maturity date if you want to withdraw all your savings at once. This can work well if you are saving for a home or other large expense.

Your interest rate will be locked in for the term of the CD, which protects your CD if rates decrease during the term. The same is true if rates increase, however, though you can typically pay an early withdrawal penalty if you want to withdraw your money before the term ends.

CDs—and CD ladders—generally appeal to people who want a low-risk investment with a guaranteed yield. Some may rely on earned interest as part of a reliable income stream. CD ladders can also be used for savings.

How to Adjust your CD Ladder When Rates Are High

If you have CDs in a ladder you established a few years ago, it might be wise to consider withdrawing even if you will incur a penalty. Just two years ago, interest rates were much lower than now. If you bought CDs then, paying a penalty (or forfeiting some interest) could allow you to lock in a higher rate now—though whether that's wise depends on the penalty fee and how much you could potentially gain by withdrawing your money.

Typically, CD investors are rewarded for choosing long time horizons, often five years or more. Larger deposits may also earn a slightly higher APY. Right now, however, the highest APYs are on terms of around 12 months; longer-term rates are lower.

Here's why: The Federal Reserve is expected to stop increasing the federal funds rate, and many experts believe that rate cuts may be on the horizon. In the short term, banks are feeling confident that today's rates will continue. Further out, they're not so sure.

Grabbing only the CDs with the highest rates may not be the best long-term strategy. Let's say you put $5,000 in a one-year CD earning 5.25%. When it matures in a year, those high interest rates may have disappeared—and 2.75% might be the best you can do. In that case, a slightly lower interest rate with a five-year term might have been a better choice.

Steps to Take When Rates Are High

So, what should you do with CDs when rates are high?

  • Revisit your rates. Check every rate for CDs you currently hold. If you have rates that are not competitive, decide whether it's worth it to pay any penalty fees or forfeit interest to lock in a higher rate now. (It's also possible to get a no-penalty CD, though rates are typically lower than on traditional CDs.)
  • Consider your goals. Keep your goals and timelines in mind when you choose maturities. If you are saving for a cruise in January 2025, for example, you might want to put your money in a nine- or 12-month CD that matures shortly before payments are due.
  • Diversify your CD terms. Consider putting half of your money into a ladder of short-term maturities and half into longer-term maturities.
  • Consider other saving options. Decide whether a CD ladder is still the best strategy for you.

Alternatives to CD Ladders

While CDs have the advantage of guaranteeing a rate and typically being federally insured, they also have some drawbacks, including:

  • They are not liquid assets, meaning you cannot typically access your CD before the term ends without paying a penalty or forfeiting interest.
  • Earnings are limited, compared to those of stocks or bonds. CD ladders are safe, but they may not keep up with inflation.
  • If you want to withdraw your money before the term ends, early withdrawal penalties will reduce your earnings.

Alternatives to CD ladders for saving include:

High-Yield Savings Accounts

High-yield savings accounts, typically offered by online banks, give you more access to your money than CDs do and offer rates close to or as good as CDs. However, their rates are not guaranteed: Your APY will increase or decrease based on market factors.

Money Market Accounts

Money market accounts function like a hybrid checking and savings account, giving you access to your funds as well as providing higher interest rates than traditional savings accounts. On the flip side, money market accounts may limit the number of transactions you can make, and may offer the highest rates only if you maintain a high minimum balance.


Bonds represent money that investors lend, usually to a government entity or corporation, for a certain period—sometimes as much as 30 years.

Treasury bonds are backed by the federal government. Municipal bonds involve lending money to cities, counties and states. Corporate bonds may be investment-grade, with a high credit rating and low risk, or high yield, with a lower credit rating and higher risk but also higher interest rates.

Dividend-Paying Stocks

Dividends are company profits paid to shareholders, typically on a schedule. They do not come with guaranteed returns; however, they may offer higher returns than CD ladders.

The Bottom Line

A changing interest rate environment might be a reason to give an existing CD ladder a second look. You may want to lock in high rates now on certain CDs, or consider distributing your cash with possible future lower rates in mind.

It's never a bad idea to take an overall look at the way you are managing your money and credit. Part of that is keeping an eye on your credit. Free credit monitoring from Experian can notify you of changes in your credit report and score, making it simple to stay on top of that part of your finances.