How To Create a CD Ladder That Functions as Emergency Savings

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Building a CD ladder for emergency savings combines security and growth. It is an effective approach that makes sure your funds are accessible when you need them while earning higher interest than a traditional savings account.

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“Because one CD may be maturing every few months, you should have free access to some of your funds on a regular basis,” said Paul Tyler, host of That Annuity Show. “Rather than reinvesting, you can pull out some of the money to cover surprise bills like home repairs or health care expenses.”

Here’s how to create a CD ladder that functions as emergency savings.

A CD ladder is a strategy that involves dividing a sum of money into multiple different CDs at staggering maturity dates rather than putting all of the money into one. This method allows you to take advantage of higher interest rates and benefit from both long-term and short-term CDs while having access to funds.

Geri Hopkins, chief operations officer at Skyla Federal Credit Union, said adding funds to multiple CDs, with staggered maturity intervals such as 3, 6, 9 and 12 months will allow savings to be accessible every few months.

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“It frees up portions of your savings on a regular basis to minimize or prevent having to liquidate your CDs and incur penalties,” Hopkins said. “The growth accrued in the short-term CDs allows members to have access to their savings to handle unexpected expenses in case of emergencies.”

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Hopkins said your contributions to a CD ladder depend on your personal saving goals and needs.

“For emergency savings, it is recommended to keep at least six months’ worth of living expenses liquid, but it can vary,” Hopkins said.

“CDs are ideal for funds that won’t be needed immediately, so it is smart to consider only putting savings outside of what you need for your emergency fund into a CD and keep the rest in a more accessible, high-yield savings account,” she explained.

Using a CD ladder for emergency savings is smart because it gives you predictable access to funds.

“Emergencies don’t follow schedules, so having a portion of your savings available every few months ensures you can cover unexpected costs without sacrificing the interest earned on longer-term CDs,” said Jon Alper of Alper Law. “The structure of the ladder makes it possible to stay prepared while earning more than you would in a standard savings account.”

To maximize liquidity for emergencies, Alper recommended starting with a one-year ladder, divided equally with terms of 3, 6, 9 and 12 months.

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“This way, one CD will always mature within the next three months,” Alper said. “Once a CD matures, you can either reinvest it into another one-year CD or keep the funds accessible if you anticipate needing them.”

Alper said there are options available if an emergency arises and your funds are locked in a CD that hasn’t matured.

“Many banks allow early withdrawals, though they typically impose penalties, such as forfeiting several months of interest,” Alper said. “While this isn’t ideal, it’s a reasonable trade-off if the funds are urgently needed. Alternatively, to avoid this issue altogether, I often recommend keeping a portion of your emergency savings in a liquid account, like a regular savings or money market account. That way, you can handle immediate needs without disrupting your CD ladder.”

Shop around for the best rates, consider no-penalty CDs, think about inflation, and be strategic with terms, Alper said.

“Not all CDs are created equal, so it’s worth comparing options from banks and credit unions,” Alper said. “Online banks often offer higher yields. Avoid overloading your ladder with long-term CDs unless you’re confident you won’t need the funds for a while.”

In addition, Hopkins suggested keeping part of the emergency funds in a high-yield savings account rather than solely relying on CDs.

“It gives members immediate access to funds in the case of an emergency,” Hopkins said. “Another workaround would be to consider CDs that allow for early or penalty-free withdrawals. Both of these options allow savers to earn more interest on their money while providing penalty-free withdrawals in case of emergency.”

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