This is how much money you can make with $1,500 on a CD ladder

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When it comes to investing in a popular banking product, a certificate of deposit (CD) is one of your best bets. You don’t have to worry about losing money because the best banks have FDIC insurance and guarantee that your money is safe. And unlike a savings or money market account (MMA), your interest rate is fixed throughout the investment period.

If there’s a downside to CDs, it’s that you have to tie up your money for a certain amount of time, but that’s where a CD ladder comes into play. With a CD ladder, you divide the money you have available to invest by the number of CDs you want to open. Next, open several CDs, each with a different expiration date.

Here’s a look at how much you can earn by opening three separate CDs and depositing $500 on each (for a total of $1,500).

Your earnings

Three factors go into determining how much you will earn from a CD ladder:

1. The expression. Most banks offer CDs with terms ranging from three months to five years, although this varies from bank to bank.

2. The annual percentage yield (APY).

3. How much you deposit.

This example assumes you open three CDs with maturities ranging from six months to five years. I have used the highest prices I could find per August 6, 2024.

Data source: Author’s calculations

At the end of six months, your first CD will have matured and you will collect $13 in interest. After 18 more months (at the end of two years) you have an additional $47. Finally, when your third CD expires after five years, you’ll be able to add another $120. In total, your investments of $1,500 will net you $180. Not bad for a relatively small but mostly risk-free investment.

Factors to consider when shopping for the right bank(s).

When choosing where to open a CD, it’s important to look for a bank that provides the features you’re looking for. Here are three points to consider.

1. Do you want to be able to withdraw interest without penalty?

In some banks, you lose part of your interest if you withdraw money before your CD expires. However, some banks allow customers to withdraw interest at any time so that only the original investment can grow.

2. Do you want all your CDs under one roof?

Some people prefer to open all their CDs in one bank to prevent confusion. Others are fine spreading them out among different financial institutions, paying only at the bank with the highest APY—especially if it means making more money.

3. Do you prefer to do your banking on the go?

If you routinely pull out your smartphone to make deposits and transfers, consider the quality of a bank’s app and how easy (or difficult) it can make the process.

Laddering reduces your risk of early withdrawal penalties

There’s another big reason to consider increasing your CDs, besides taking advantage of the best rates among multiple banks: You could be charged an early withdrawal penalty if you withdraw money from your CD before it expires . It’s a bank’s way of encouraging you to leave your money in place for the duration of your CD.

CD ladders can help with this as they are structured to allow CDs to mature at different times. As a result, you can count on some of your money being released periodically. Knowing that money will be available just around the corner can reduce the need to withdraw money before another CD expires.

If you want to take advantage of the high prices of CDs right now and avoid the risk of early withdrawal penalties, stepping on the stairs for your CDs might just be the way to go.

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