CD Laddering: How It Works
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Laddering your CDs (share certificates) is a solid diversification strategy

Financial Advice


Articles and research about personal finance

CD laddering allows you ongoing access to funds with higher returns

Financial Advice


Articles and research about personal finance

CD Laddering: How It Works

Published June 24, 2016

Getting the most from your CDs can require strategy, and one popular game plan involves choosing multiple CDs with staggered maturity dates — a method known as laddering.

Because CDs remain the highest-yielding government-insured tool available for generating interest, the methodology can offer you guaranteed returns along with a hedge against missing out on even better ROI. That can mean peace of mind, especially in uncertain economic times. Particularly popular in bear markets, such laddering can be ideal if you’re hesitant to move forward on more complicated investments because you’re leery of tying up your money.

“Laddering is a fancy term for not putting all your eggs in one basket,” explains Terri Cullen in the Wall Street Journal. “This strategy allows you to reap high returns, but also gives you tactical flexibility to react to a sudden change in the interest-rate environment.”

In the credit union biz, the financial tools that function the same way as CDs are known as share certificates. Both are government-insured for up to $250,000, but share certificates often offer better rates of return. At Amplify Credit Union, you can buy such certificates for as little as $500, with no monthly fees. Better yet, higher balances mean better rates at Amplify.

How Can I Ladder My CDs?

If you’re unfamiliar with share certificates, you should know they typically involve placing your money for a fixed time in return for a fixed dividend; usually your money can’t be removed until the certificate matures without a significant financial penalty. Exceptions, however, include “step-up” certificates that incorporate higher interest if rates rise before maturity and “liquid” certificates that allow some access to your funds at the expense of lower rates.

You might start the CD Laddering process by shopping around for the best ROI on share certificates, a number indicated by the dividend rates being promoted. At Amplify, share certificate dividends are compounded and deposited quarterly.

When developing a laddering strategy, you should consider the following: ROI you need, when it’s needed, the liquid cash you’ll need during the life of the certificates, the amount you can afford to have unavailable for the long term, and the likelihood of rising interest rates. Experts at your credit union can use their industry knowledge and experience to help you formulate that strategy, or you can check out Amplify’s handy share certificate calculator to predict potential earnings.

In a scenario offering a wide safety net for your portfolio, you might divide a chunk of money into five certificates maturing at increasingly longer intervals. As such a $10,000 sum would be split into $2,000 amounts that mature at increasingly better interest rates in 12 months, 24 months, 36 months, 48 months and 60 months, respectively. At the end of the first year, you would re-invest the 12-month proceeds into another 60-month certificate with better interest; after that one of your certificates matures each year, allowing you the freedom to buy in more certificates or place your money somewhere else.

For even greater flexibility, of course, you can buy certificates that mature in three, six or nine-month increments, though you’ll sacrifice the higher interest inherent with longer-term certificates. You may want to consider a federally insured Money Market Account or Savings Account for funds you need on-hand.

Either way, having more frequent access to your funds through laddering can help you budget more accurately and save you from any early withdrawal financial penalties caused by unforeseen circumstances. Plus, CDs and share certificates represent a sure thing when it comes to ROI.

Diversifying Your Entire Savings Portfolio

So now that you know how to ladder your CDs and share certificates, you can also use Money Markets and traditional Savings Accounts to further diversify your assets, earnings, and liquidity. Federally insured Money Market Accounts are a great way to maintain liquidity while still earning a higher APY than your funds would earn in your Checking or Savings Account.

Interested in earning better savings and share certificate dividends with Amplify?

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