financial planning

How to Successfully Build a CD Ladder for Your Benefit

Discover what certificates of deposit are and how you can use cd laddering to further your financial goals. No stocks, no stress, all guaranteed.

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The word investment comes with a polarizing connotation: excitement at the prospect of growing wealth, or anxiety over the potential risk. Investing is an important part of any financial plan, but choosing steps that meet your situation are the key to setting you up for success, and you already unconsciously climb that ladder every day. You’re investing now without even realizing it. Every day that you leave a balance in your savings account, every purchase you make, every choice you make with your money is an investment. Whether it’s a smart investment or not entirely depends on your overall goals.

There are so many different ways to invest based on your risk tolerance, but certificates of deposit are a great method for both beginners and anyone who wants a safe, easy way to make money. Not only do CDs earn higher rates than a normal savings, they are safer than stocks, and you can have as many as you want, even building a CD ladder to meet your investment goals. Don’t be overwhelmed by the idea of investing. When you know your options, you can easily get your investment portfolio to show you the money.

What is a CD?

CD is short for certificate of deposit. Certificates of deposit are simply another way to save money while earning dividends, however, they’re considered a better investment than your typical savings account because they offer higher dividend rates. All you do is deposit an amount, and it goes to work earning money for a fixed time period and rate.

The Benefit of a CD is All Yours

Certificates of deposit are high-earning savings that offer a safe alternative to investments such as stocks because they don’t play the market game. You don’t have to worry about fluctuations of NASDAQ tickers or economic downturns with a certificate of deposit. Your money is certifiably your money, and it stays that way.

Everyone Loves Options

Another benefit of CDs is that you have the power of choice. There are multiple terms to choose from, so all you have to decide is how long you want to set your money aside for. The required deposit amount will vary across different financial institutions, but most require a minimum of $500 or $1,000.

At SunWest Credit Union, we offer CDs for terms between 6-60 months. These terms come with tiered rates, meaning the rate is typically determined by the CD length. Play with the numbers using a calculator to see what works best for you.

Here’s an example of how that could look:

1. Sam has cash from the sale of her home. She’s not comfortable investing in stocks right now, but she wants to earn more than she would by leaving it in a savings account.

2. She goes to SunWest with $100,000 and opens a 60-month CD at 2.00%*.

3. Sam’s CD compounds interest monthly, adding the earned interest each month to the total balance.

4. 60 months later, Sam has made $10,507.89!

Five years is a long time to set a large amount of money aside, though. You may find that you like the idea of a long-term CD, but you’re not ready to tie up all of your money for that long. This is where CD laddering can help you climb to the next level.

What is a CD ladder?

A CD ladder is a strategic way of investing your funds across multiple certificate terms. This gives you the advantage of earning the high rates of longer terms, while still making funds available to you at shorter terms.

How Does it Work?

CD ladders work by staggering your deposit investment across multiple CDs. Let’s refer back to Sam to see what she could have done alternatively to opening just one certificate.


Sam needs cash available sooner to purchase a new refrigerator in about a year, so she doesn’t want to put the full amount in the 5-year CD. Sam is also planning on buying a brand-new car in a couple years and will want some of that initial $100,000 deposit for a down payment.

1. Sam visits SunWest with $100,000, but this time she opens 5 different CDs.

     o  6 months at 1.40%* with a deposit amount of $20,000

     o  12 months at 1.50%* with a deposit amount of $20,000

     o  24 months at 1.60%* with a deposit amount of $20,000

     o  36 months at 1.85%* with a deposit amount of $20,000

     o  60 months at 1.95%* with a deposit amount of $20,000

2. Flash forward to 6 months later when her first CD matures, and Sam has a balance of $20,140.41 that she can withdraw from for her new refrigerator.

3. Sam withdraws $2,500 from her 6-month CD and reinvests the remaining amount in a new 5-year CD.

4. Another 6 months later, Sam’s car has been having some issues, and it doesn’t make sense to keep paying for repairs when she could get a new one. Her 12-month CD is maturing now with a balance of $20,302.07.

5. Sam withdraws the $5,000 she wants to use as her down payment and reinvests the remainder in another 60-month CD.

6. 1 year later, Sam’s 24-month CD is due to mature at a balance of $20,649.91. She doesn’t need to withdraw from the amount, so she reinvests the full sum into another 60-month CD.

7. Sam’s ladder ensures that Sam has access to some funds within short time frames, while still earning higher dividends than a regular savings account.

There’s really no right or wrong way to create your ladder so long as you’re making sure that it meets your financial investment goals. In Sam’s case, she wanted to have semi-liquid funds over periods of time for specific uses.

You’ll have to assess your financial situation to see how much you can afford to set aside and for how long. You don’t want to set up a 5-year CD only to have to withdraw from it every few months and incur early withdrawal penalties.

Check out current CD rates to see what kind of CD ladder investment you can start building today!

March 10, 2023

Published by SunWest Credit Union

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