Certificates of deposit rates dipped moderately in the second half of 2024 due to Federal Reserve interest rate cuts but have bounced back in 2025, with the best CD rates falling into the 4.5% range. As long as the Fed keeps its lower interest rate strategy on pause, savers can expect robust CD-rate levels and cash in on some good CD deals.
That’s especially true for U.S. retirees living on fixed incomes. One way retirees can maximize their CDs is to plan ahead, building a CD ladder with different maturity dates for ample future returns.
[Read: If You Want to Retire in 2026, Here’s What You Need to Prep Now]
What Is a CD Ladder?
A CD ladder is a structured investment strategy in which investors allocate funds into FDIC-insured bank deposits with staggered maturities. This approach involves a laddered mix of short- and long-term CDs to create liquidity and growth.
As each CD reaches its scheduled maturity, a retirement saver can collect the cash for spending or roll the proceeds into another CD.
Built correctly, CD ladders can provide retirees with predictable and consistent income. Moreover, they are low-risk and reduce overall retirement portfolio risk by balancing higher-risk investments.
Retirees with at least six months of emergency savings can use CDs to earn extra income and reduce portfolio risk.
Pros and Cons of CD Ladders
As with any investment strategy, retirement savers should consider the upsides and downsides when determining whether CD ladders should be part of their portfolio.
Pros of CD Ladders
— CD ladders are a suitable income-geared investment in good times and can act as a buffer against stock market declines.
— A CD ladder provides a reliable income stream through regular maturities.
— CD ladders offer FDIC insurance protection of up to $250,000 per depositor, making them a secure savings option.
Cons of CD Ladders
— CDs typically offer moderate returns compared to riskier, higher-performing stocks.
— Early withdrawals may result in bank fees and penalties.
— Interest earned on CD ladder strategies is taxed if it’s applied outside a retirement account.
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Building a Successful CD Ladder
A successful CD ladder requires planning to balance accessibility and long-term growth. For example, with $5,000 to invest in a CD ladder, you can steer $1,000 into a one-year CD, $2,000 into a two-year CD and $2,000 into a three-year CD.
The biggest mistake people make when building CD ladders in their 60s, 70s and beyond is to chase the highest interest rate regardless of the CD term. “For some, shorter ladders — such as one to three years — may make more sense, allowing more frequent adjustments to changing rates or financial needs,” said Randy Carver, president of Carver Financial Services in Mentor, Ohio, in an email.
Retirees should align CD ladders with expected expenses and complement them with flexible assets like money markets. “The best part about a laddering strategy is that you can access that maturing portion of your cash after that first year if you need it,” said David Crittendon, executive vice president of UMB Bank in Dallas, in an email. “If you don’t need it, you can open a new CD with a longer term, which may have a higher, long-term rate. Over time, each of your CDs will mature, providing cash liquidity while also providing interest rate growth.”
CDs can play a key part in a retirement plan, but it’s important not to lose sight of the big picture. “While CD ladders can offer stability, retirees need to recognize that today’s rates are moderate, and flexibility matters,” Carver said. “Money markets may provide higher yields with daily access, and equities remain essential to outpace inflation and protect purchasing power over the long term.”
To maximize your CD ladder outcomes, follow these additional guidelines:
— Start with a clear projection of your short- and mid-term cash flow needs.
— Use brokered CDs for more competitive rates and the ability to sell if needed.
— Consider FDIC-insured structured notes for growth potential.
— Reassess your CDs annually, considering current interest rates and aligning maturities with your financial plan.
— Maintain FDIC coverage limits and diversify across institutions.
[Read: The Most Tax-Friendly States for Retirees]
How to Open a CD Account
Retirement investors can easily open a CD account at major investment management firms like Fidelity, Vanguard or Charles Schwab. They can also check with the money management firm running their individual retirement account or work with their bank.
Opening a CD account to create a ladder strategy should also be supervised by a trusted financial advisor who can walk you through opening and managing your CD ladder portfolio.
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How to Build a CD Ladder for Retirement originally appeared on usnews.com
Update 03/26/25: This story was published at an earlier date and has been updated with new information.
