Laddering Certificates of Deposit: A Strategic Play in a Falling Rate Environment

As interest rates continue their gradual decline, investors face a critical question: How to secure competitive yields while avoiding the pitfalls of reinvestment risk and liquidity constraints? The answer lies in a time-tested strategy—CD laddering—tailored to thrive in today's evolving rate landscape.

The Current Rate Landscape: A Declining Horizon

The Federal Reserve's pivot toward rate cuts since mid-2024 has sent ripples through the CD market. Short-term rates (e.g., 6-month CDs) have led the decline, falling by 0.20–0.30% since late 2023, while long-term rates (5-year CDs) remain stubbornly elevated due to the Fed's "higher-for-longer" stance.

By June 2025, institutions like Marcus by Goldman Sachs still offer 4.25% APY on 1-year CDs, but these rates are down from their 2023 peaks. The challenge? Balancing the need for yield against the risk of locking funds into long-term CDs that may underperform if rates drop further. This is where laddering shines.

What Is CD Laddering, and Why It Works Now

CD laddering involves distributing funds across CDs with staggered maturity dates. For example, instead of investing $20,000 in a single 5-year CD, you'd split it into five $4,000 CDs maturing in 1, 2, 3, 4, and 5 years. The benefits are twofold:
1. Liquidity Control: Regular maturities provide access to funds without penalty.
2. Reinvestment Flexibility: As each CD matures, you reinvest the proceeds into a new long-term CD, gradually capturing higher rates if they stabilize or rebound.

In a falling-rate environment, this strategy mitigates the risk of being "stuck" in low-yielding CDs. For instance, if rates drop by 0.5% over two years, a laddered portfolio ensures only a fraction of your funds are exposed to the decline at any time.

Building Your Ladder: Step-by-Step

1. Assess Liquidity Needs: Determine how much you need to access annually. A 6-month ladder (e.g., 6-month, 12-month, 18-month CDs) offers frequent liquidity but may sacrifice peak yields.
2. Select Institutions: Prioritize banks offering competitive rates with minimal penalties.
3. Short-Term: Popular Direct (4.40% APY for 3-month CDs) or Marcus (4.20% for 6 months).
4. Long-Term: Synchrony Bank (4.15% for 5 years) or TAB Bank (3.81% for 5 years).
5. Diversify Maturities: Aim for intervals of 6 months to 1 year. Example:
6. $10,000 split into 6-month, 12-month, 18-month, 24-month, and 30-month CDs.

Key Considerations and Risks

Reinvestment Risk Mitigation:
- Use bump-rate CDs (e.g., Synchrony Bank's adjustable terms) to reset rates if market conditions improve.
- Keep 10–15% of funds in a high-yield savings account (e.g., 5.50% APY) for emergencies.

Liquidity Risks:
- Avoid overcommitting to long-term CDs. If rates fall further, shorter-term ladders (e.g., 1–3 years) reduce reinvestment penalties.

Institutional Due Diligence:
- Check FDIC/NCUA insurance limits (up to $250,000 per account).
- Compare early withdrawal penalties. CIBC Bank USA charges only 30 days of interest, while Vio Bank levies a harsher 60-day penalty.

Data-Driven Decision Making

This comparison reveals that while Popular Direct leads in short-term rates, Marcus offers steadier returns over multi-year terms. Pairing these institutions creates a robust ladder.

Final Investment Advice

1. Start Small: Begin with a 2–3 year ladder using short-term CDs, then expand as you assess your risk tolerance.
2. Lock in Current Rates: Institutions like Marcus and Synchrony Bank still offer above-average yields—act before further declines.
3. Monitor the Fed: Track upcoming meetings (e.g., the September 2025 session) for clues on rate trends.

In a falling-rate world, CD laddering isn't just a strategy—it's a necessity. By structuring your portfolio to adapt to shifting rates, you can preserve liquidity, minimize reinvestment risk, and secure the highest possible returns in an uncertain environment.

Stay informed, stay strategic—and let your ladders climb.