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How Does Certificate Laddering Work?

Want a low-risk, easy way to invest? Ladder your certificates.

Certificate accounts give you a low-risk, effective way to grow your savings. Unlike some other investments, there is minimal risk of losing your principal. You choose the amount to deposit and the length of time you want to invest, and then just sit back and watch the account earn dividends. And, like any other savings account with a federally-insured bank or credit union, certificate accounts are insured up to $250,000.

But did you know there’s a way to make a certificate account work even harder for you? Enter: certificate laddering.


What is a certificate account?

Certificate accounts offer a higher annual percentage yield (APY) than you would get with a typical savings account. You can open a certificate account with a little as $500 at most financial institutions. Each certificate is invested for a specific term, which can range from 30 days up to five years. During that time, your money earns a guaranteed rate; the longer the term, the higher the yield. You can either withdraw dividends each month or reinvest them along the way to increase your overall earnings.

The challenge with a certificate account is that you must leave your funds invested for the entire term; there is a penalty for early withdrawal. And if rates of return increase during that period, you can’t take advantage of the opportunity for higher yields.

To give yourself more flexibility in terms of access to your money, and to allow you to take full advantage of the higher rates associated with longer-term certificates, consider using a process called laddering.


What is certificate laddering?

Laddering is a savings technique that gives you more flexibility with the timing of your certificate investments. You simply divide your investment into smaller amounts and spread out your certificate maturity dates. Once established, this approach allows you to benefit from the higher dividend rates of the longer-term funds while still giving you access to your money if needed as those funds mature along the way.


How does certificate laddering work?

Instead of putting all your money into one certificate account with long-term maturity, open several separate accounts with staggered maturity periods.

For example, instead of investing $5,000 in one certificate that matures in five years, open five separate accounts, with $1,000 each, that mature in one, two, three, four, and five years respectively. Every year, one of your certificates will mature and you can then roll it over and ‘move it up the ladder’ into a new five-year certificate. In five years, your certificates will have regular, staggered maturity dates, and you’ll have access to some of the funds every year if needed.

Laddering spreads out your risk of market fluctuations. For example, if APY rates drop, only your newer rollover investment will be impacted. And if rates are rising, you will be able to take advantage of the higher rates as each certificate matures and is reinvested.

You can also use laddering to diversify your certificate investments. Accounts with long-term maturity dates will help protect you if you expect APY rates to fall over time, while accounts with shorter maturity dates will allow you to take advantage of rates you think will rise.

How much extra can you earn by laddering your certificates?

The benefits of laddering your certificates can really add up. And, it’s easy! You invest the same amount of money over the same amount of time, but you’ll earn more. See how much more your investments will grow just by using this simple savings technique.


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How much extra can you earn by laddering your certificates?

Certificate laddering is an easy way to boost your savings

Laddering is easy, and your laddering strategy can be specifically configured to meet your specific goals and timing. Once you’ve got it all set up, the program essentially becomes automatic. You get to maximize your savings potential in a low-risk account.

Ready to see where certificate laddering can take you? Open your ladder of certificates today!

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