Unity One CU informs: What is CD Laddering?

Posted by Alyssa Guillory on Mon, Mar 18, 2019 @ 10:56 AM

shutterstock_514951309 (2)Originally posted on the CUNA Financial Resource Center.

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 keeping your money in a CD for a 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 into separate certificates that mature at different intervals. For instance, put $500 in a 1-year certificate, another $500 in a 2-year certificate, another $500 in a 3-year certificate, and so on. The longer the term, the higher the interest rate you'll earn on it.

As each certificate matures, you can reinvest the money in a longer maturity certificate. At a certain point, the ladder will be made up entirely of long-term, high-yielding CDs. And since you have a CD maturing regularly, you can always cash it in if you need the money.

For help starting your CD laddering, contact your credit union.

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Topics: certificate of deposit, Unity One Credit Union