Build your own CD ladder

When it comes to saving, you usually hear the same advice: Slow and steady wins the race. However, there is a way to pick up the pace with certificate of deposit (CD) accounts. It’s called a CD ladder, and it’s a simple, safe opportunity to grow your money faster.

New to CDs? Here’s a quick breakdown

• They’re FDIC-insured up to $250,000.¹ 
  CDs are just as secure as your checking and savings accounts.
  
  
• They typically offer higher interest rates than traditional savings accounts. 
  In return, you let the CD grow—in other words, don’t make withdrawals—until the CD term ends.
  
  
• You choose from a range of terms when you open an account. 
  It can be as low as 10 days up to 7 years.
  
  
• Longer terms usually offer higher interest rates. 
  The higher rate means your money earns more.

With that logic, you should put everything into a 7-year CD to get the best rate, right? Not so fast. Seven years is a long time. What happens if you need the money before the term ends? You’d pay a fee for the early withdrawal, which would reduce your earnings.

How a CD ladder works

That’s where a CD ladder comes in. Instead of putting all your money into one large CD, you open several smaller CD accounts, each with a different term length. The staggered terms are the ladder and position you to earn a higher rate while still having regular access to your money. Here’s an example: Let’s say you have $8,000 for a CD ladder, and you want a CD to reach maturity every year. You’d start by opening four CD accounts, like this:

• $2,000 in a 1-year CD
• $2,000 in a 2-year CD
• $2,000 in a 3-year CD
• $2,000 in a 4-year CD

When a CD term ends, you can take the $2,000 plus all the interest you earned to use as you wish or keep the ladder going by opening another 4-year CD. Note: A CD ladder can include shorter or longer terms than we use in our example. Choose whatever terms work best for you.

CD ladder pros and cons

Let’s start with the benefits of a CD ladder:

• You’ll have regular access to your money instead of locking it up for years.
• You’re less likely to miss out if rates go up.
• You’ll earn a higher interest rate than most traditional savings accounts.

And here are some of the drawbacks:

• If you don’t have other savings, you’ll risk paying an early withdrawal fee if you need to access cash.
• You’ll need to keep on top of your CD maturity dates. We’ll help by emailing you a reminder before your CD term ends.
• Since CD rates fluctuate, you could earn less by automatically renewing your CDs for the same term. When a CD term ends, check the latest rates and terms to find the best combination for your CD ladder.