3 ways I use CD ladders to get the most out of my savings worry-free

I don't want to leave all my money in a CD for a year or more and potentially not have access to it — CD ladders make it easier not to worry.

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• I used to be worried about needing money I had left in a CD — but CD laddering helps with that.
• I have money in CDs of various lengths, and I can decide what's right for different amounts of money.
• This ensures that as CD rates fluctuate, I'll have access to great APYs that become available.

I made a big financial move this year: I put the majority of my net worth in CDs. For most of my 20s, I had my cash sitting in a savings account. I've tried to make up for the money I lost in compound interest by shifting my cash around into different high-yield savings accounts.

Since the interest on savings accounts fluctuates widely, I decided to switch up my approach this year and put the majority of my cash into a handful of different CDs.

Some of the best CD rates that I've found this year include 4% to 5% APY. Typically, the longer the CD term has, the higher the rate will be, but lately, I've noticed that 1-year CDs often have higher rates than 5-year CDs.

CD ladders are a strategy where you spread out cash across multiple CDs, with different term lengths to take advantage of high interest rates. For example, you could put $10,000 in a 1-year CD, $10,000 in a 6-month CD, and $10,000 in a 3-month CD.

I got advice from a friend who's using CD ladders and decided to try them out for myself. Here are the three ways I'm getting the most out of the current high rates.

1. I'm diversifying the lengths of my investments

In the past, if I was going to put my money in a CD, I'd put it all in one CD with a year or 18-month CD term. I always feared that if I put my cash into a long-term CD, I'd end up needing that money to pay for bills or an emergency, and I'd have to pay a penalty to get it out.

With a CD ladder, I'm able to stagger the lengths of my CDs, which minimizes any risk of locking my money up for a long period of time. Since I have money in CDs that range from six months to three years in length, I'm always just a few months away from a CD coming due and the money being available.

2. I'm using a leapfrog approach

One method that a friend shared with me is to use a leapfrog approach with a CD ladder. Since my CD ladder is set up with a mix of short-term and long-term CDs, once the short-term CDs mature, I replace them with long-term CDs instead of short-term ones.

As the short-term CDs mature and are reinvested in long-term CDs, the original long-term CDs will become closer to maturing. That means I can potentially reinvest the cash from a short-term CD into a longer term one that offers a higher APY.

Right now, I don't have the funds to invest all of my cash into long-term CDs. But locking some cash up into short-term CDs now and then reinvesting it into long-term CDs later gives me the flexibility and liquidity to work on multiple financial goals at the same time, without being tied to long-term CD maturity dates.

3. I'm tapping into increasing CD rates

Since APY rates for CDs are always changing, using a CD laddered approach allows me to keep tapping into potentially higher interest rates than I already have now.

That way, when a CD comes to term, I can scope out other CD options with higher rates and reinvest the cash into that new CD. If all my money was locked up in one 18-month CD, I'd potentially miss out on higher interest rates that pop up before that time period.

This article was originally published in August 2023.