Financial Education


CD Laddering: The Easy Way to Amp Up Your Savings

August 15th, 2016

With interest rates so low, getting the most out of your savings can be a challenge. So how do you earn money from your savings without tying it up for years? Enter the magic of CD laddering.

What’s a CD?

Certificates of deposit, also known as share certificates, are like a savings account where you can’t withdraw the money for a certain period of time. In return for agreeing to keep your money in a CD for a longer period of time, your financial institution pays you a higher rate of return. 

What’s a CD ladder?

CD laddering is a simple concept: Divide the amount of money you have to save among certificates that mature at different intervals. As each certificate matures you can turn it over into a longer maturity certificate. In time, all your certificates will be earning a higher yield with a longer maturity. Because you have a CD maturing regularly, you can always cash it in if you need the money.

A beginner’s CD ladder

A common CD ladder would be as follows: If you have $1,500 to invest, deposit $500 into a one, two, and three-year certificate. Each year when a certificate matures roll the principle ($500) plus the dividends (interest made over the year, which varies depending on the interest rate) into a three-year certificate for a higher-dividend yields. Continue each year as your certificates mature, and reinvest them into a three-year certificate so all your money is earning a three-year rate.

If your starting with less you could invest smaller amounts into three, six, 12, or 12, 18, 24 month certificates. Again the same principle applies, as each matures reinvest it for a longer term certificate until all your money is earning the highest rate.

Depending on your financial goals you can ladder any way you want. For help starting your CD laddering, contact your credit union.

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