Saving for a big life event like a wedding, buying a home or car, or even just paying student debt? While your standard savings account is a perfectly safe option for your money, you may want to consider CDs and how they can be maximized to give you great return as you build up your funds. Let’s look at a common strategy for getting your CDs to really work for you: CD Laddering.

What is a CD?

Let’s start with the basics: What is a CD? CDs are savings products that provide a low-risk opportunity to earn interest over a set amount of time. This means that your investment does not fluctuate with the stock market, offering you more security. CDs typically pay higher interest rates than other savings products and are federally insured to at least $250,000 by the NCUA. Funds may be withdrawn before the end of the CD’s term, also known as the maturity date, but there may be a penalty.

What is a CD Ladder?

A CD Ladder is a carefully selected group of CDs of varying rates and terms, into which you invest equal amounts you will then reinvest once each CD matures. CD Ladders are meant to not only optimize your yield, but also increase the liquidity of your funds. Because CDs often include penalties for withdrawing funds early, a ladder can give you more frequent opportunities to access your money when you need it. By splitting your total savings among CDs that range from short term to long term, part of your total investment will become available to you to either withdraw or reinvest at regular intervals you choose.

CD Ladders are an easy way to plan for the future while keeping your risk at a minimum. Because they offer fixed terms and interest rates, higher interest rates than a standard savings account, and give you the added benefit of budget control, they can help supercharge your savings.

What Does a CD Ladder Look Like?

Let’s consider a few scenarios, ranging from short-term to long-term. The term lengths on your ladder will be based on your individual needs and how long you plan to save. Let’s start by looking at a shorter-term ladder, which might be a good fit for someone who wants to save for something relatively small, like a down payment on a vehicle, a trip overseas, or building an emergency fund.

Scenario #1 – Short-Term CD Ladder, $2,000 total invested

CD Type Amount Invested CD Balance With Laddering Potential Interest Earned Laddering** APY
5-Month Holiday CD $500 $500 $5.17 2.50%*
11-Month CD $500 $1,000 $21.06 2.30%*
22-Month CD $500 $1,500 $69.47 2.50%*
36-Month Bump Rate CD $500 $2,000 $156.93 2.55%*
Total $2,000   $252.63

 

In this scenario, you’ll have access to $500 plus the compounded interest after 5 months. You can then choose to withdraw those funds or reinvest in a 36-month CD (the same length as the longest-term CD on your ladder). After another 6 months, your 11-month CD will mature, and you’ll reinvest those funds into another 36-month CD. Do that again with each CD at the end of each term, and you’ll have built a steady stream of savings and interest you can access at regular intervals.

Now, let’s look at what you can do if you want to invest for a longer term; this is great for investing somewhat larger amounts or saving for larger purchases, like a down payment on a mortgage or a home renovation.

Scenario #2 – Mid-Term CD Ladder, $5,000 total invested

CD Type Amount Invested CD Balance With Laddering Potential Interest Earned Laddering** APY
5-Month Holiday CD $1,000 $1,000 $10.34 2.50%*
11-Month CD $1,000 $2,000 $42.13 2.30%*
22-Month CD $1,000 $3,000 $138.93 2.50%*
36-Month Bump Rate CD $1,000 $4,000 $313.87

2.55%*

48-Month Bump Rate CD $1,000 $5,000 $562.27 2.70%*
Total $5,000   $1,067.54

 

In this ladder, you’ve invested a larger amount and added a longer-term CD, which means you’ll reinvest the funds from each CD as they mature into another 48-month CD. Funds from this ladder will be available an average of every 11 months.

Finally, let’s explore what a long-term CD ladder might look like. Longer-term CD Ladders are ideal for retirement savings and larger investments.

Scenario #3 – Long-Term CD Ladder, $50,000 total invested

CD Type

Amount Invested CD Balance With Laddering Potential Interest Earned Laddering**

APY

5-Month Holiday CD

$10,000

$10,000 $103.42

2.50%*

11-Month CD

$10,000

$20,000 $421.27

2.30%*

22-Month CD

$10,000

$30,000 $1,389.30

2.50%*

48-Month Bump Rate CD

$10,000

$40,000 $4,498.13

2.70%*

70-Month CD

$10,000

$50,000 $9,746.47

3.10%*

Total

$50,000

 

$16,158.59

 

In this ladder, you’ll roll your funds over into 70-month CDs each time one matures, ultimately giving you a longer term with higher yields without sacrificing the liquidity of your funds. Starting a ladder of this length early will ensure you have a strong revolving stream of dividends by the time you retire.

Who Should Consider a CD Ladder?

Anyone with $500 or more that would like a low-risk investment opportunity and has the flexibility to set the money aside for a set period of time.

While CDs are great for older people saving for retirement, younger people can benefit from this investment product as well. From building up an emergency fund for your young family to paying down your student debt to saving for your first home, a CD Ladder can be a valuable tool with little risk. A great option for those just starting to build their careers and families, CD Laddering is a way to ease into investing. With a wide variety of terms and incentives, like the ability to “bump up” your interest rate or add funds as you go, you can create a truly customized system that gives you optimal returns.

Want to learn more about how a CD Ladder might benefit you? Call us at 844.238.4228, visit your local Advia branch, or visit us online.

 


*Promotional rates and terms revert to non-promotional terms upon maturity. See certificate for details. Rates subject to change daily. Current Member Advantage Rewards are not eligible on EZ Saver CDs, Bump Rate CDs, and Holiday CDs.  Early CD withdrawal penalties may apply. Minimum balance to open a Regular CD is $500. Minimum balance to open an EZ-Saver CD is $50. Samples shown above are estimations based on current APY and sample dollar amounts. **Approximate interest calculated using Bankrate’s CD Calculator and is not a guarantee of return. https://www.bankrate.com/calculators/savings/bank-cd-calculator.aspx. Holiday CD: Annual Percentage Yield. Minimum $500 to open and only available in a 5 month term. Subject to early withdrawal penalty. Dividends will be paid monthly. Upon maturity, CD will renew into a standard 6 month certificate. Rates effective as of November 1, 2018 and valid through December 14, 2018. Offer expires December 14, 2018. Federally insured by NCUA. Regular CD: Annual Percentage Yield based on funds retained on deposit for term of certificate. Limited time offer subject to change. Promotional rate terms to revert to non-promotional terms upon maturity. See certificate for details. Base rate features additional incentive of 0.05% for Advantage Checking and 0.10% for members with Advantage Plus or e-Checking. Subject to penalty for early withdrawal. Bump Rate CD: Current Member Advantage Rewards do not apply to this certificate type. Early CD withdrawal penalties may apply. Minimum balance to open a CD is $500. One-time during the term of your CD you may request a rate increase to our current published rate for the equivalent term CD. The higher rate will be earned for the remainder of the term. Rates are subject to change daily and may not increase over the term of the CD. CD will renew into a regular CD of the same term. To exercise this bump feature, you must call us at 844.238.4228 or stop into a branch.