How to Ladder Certificates

A Strategy for Continuous Earnings


It’s no secret that to build your savings you’ve got to look for financial products that offer the best interest rate. But with the market in constant flux, deciding on the best savings vehicle can pose a dilemma. Do you put your money in longer-term Certificates to get the highest rate? Or do you invest in shorter-term Certificates to keep your money more readily accessible, but earn a lower rate?

A Certificate “laddering” strategy gives you the best of all worlds:

  • Liquidity
  • Higher return and guaranteed savings

Put simply, Certificate laddering is a simple concept with little risk.

Visualize the rungs of a ladder, each one holding a different Certificate with different maturity dates and higher return rates as you move up the ladder. Use the ladder to buy several Certificates at one time.

For example, if you have a total of $10,000 to invest you could purchase 5 Certificates: one for $2,000 at 12 months, another for $2,000 at 24 months, a third for $2,000 at 36 months, a fourth for $2,000 at 48 months, and a fifth for $2,000 at 60 months.

As each Certificates matures, you can either cash it in or renew it at the 60 month term. The result is that each year, you have money available and can continue to take advantage of the best current rates.

The key is to use the same term for each one once you start rolling them over at maturity. At the end of four years you’ll have five Certificates with one maturing every year, so you’ll never have all of your money tied up long-term or at lower than market interest rates. Certificate laddering is a smart way to protect yourself against fluctuations in interest rates, while giving you the security of knowing that you will be able to access at least some of your money within a relatively short time frame.

   

Certificate laddering moves your money to higher earning power without tying up your funds in untouchable accounts. Each year some of your money is up for cash or renewal.