You’re a great saver –but are you maximizing your earning potential? CD laddering is a smart strategy that allows you to earn higher interest rates compared to opening a single CD or standard savings account.
CD laddering, explained.
First, what is a CD ladder? Imagine placing a stack of cash on several steps of the ladder, and that each step represents a different term (1-year, 2-year) CD. Now, take that same cash and walk into a financial center: Let's say you open 1, 2, 3, 4 and 5-year CDs. Your 5-year CD has the highest interest rate. This is where the laddering comes in. Every year, you simply take the CD that matured and renew it at the highest 5-year rate. At the end of four years, all five CDs are earning interest at the highest rate possible!
What's more, every year you have a CD that matures, should you need to access a portion of your cash. Or, you can keep renewing your CDs – it's up to you. By “laddering” the initial setup, you ultimately gain maximum interest on your CDs.
Why you should consider a CD ladder
- Simple, easy and effective method that, once set up, works on auto-pilot.
- Earn higher interest rates while maintaining frequent access to a portion of your cash, as opposed to opening a single CD and repeatedly renewing it.
- Good for all ages – there's no minimum age requirement. A parent or guardian must be a joint owner on accounts for minors.
- Flexible options allow you to choose how much you want to invest, and for how long.
- Worry less with changing interest rates - if rates go up you'll have cash to invest in new CDs. Yet if rates fall, you still have money invested in long-term CDs that come with higher rates.
- Step 1: Choose the longest term CD you'd like to open and the total amount you'd like to invest.
- Step 2: Divide the money evenly and open five CDs with equal, ascending terms.
- Step 3: When your first CD matures, renew into the longest term CD.
Renew into the longest term CD
Generally speaking, longer term CDs pay higher rates, so you'll continue your ladder by renewing into the longest term CD you originally opened, which in the standard CD ladder example would be a 60-month CD. And, you'll repeat this step as your other CDs mature.
Once all the original CDs have renewed, the ladder is on autopilot. Each of your original CDs are now higher yielding 60-month CDs and will continue to renew automatically into 60-month CDs, one maturing each 12 months, for as long as you'd like. And you'll benefit from 60-month rates while still having access to a portion of your cash each year.
Ready to get started?
To open a CD, you must establish and maintain membership by opening a Member Advantage Savings Account or Member Share Savings Account. Early withdrawal penalties may apply.