Boost Your Savings With a CD Ladder
If you’re looking for a safe and reliable way to grow your savings, you might want to consider a CD ladder. A CD ladder is a strategy that involves investing in multiple certificates of deposit (CDs) with different maturity dates. This way, you can enjoy today’s higher interest rates while still having access to some of your money at regular intervals.
What is a CD?
A CD (certificate of deposit) is a deposit account that offers a fixed interest rate for a specified period of time, usually ranging from a few months to several years. Unlike a regular savings account, you cannot withdraw your money from a CD before the maturity date without paying a penalty fee. However, CDs typically offer higher interest rates than savings accounts, making them an attractive option for savers who want to lock in a guaranteed return with no risk.
How does a CD ladder work?
Instead of putting all your money into one CD, a CD ladder is created by dividing your total amount of money into equal or unequal portions and investing them in CDs with different maturity dates. For example, if you have $10,000 to invest and want to build a CD ladder, you could put $2,500 in each of the following CDs:
- A 3-month CD at 4.33% APY*
- A 7-month CD at 5.40% APY*
- A 13-month CD at 5.25% APY*
- A 15-month CD at 5.12% APY*
As each CD matures, you have the option to either cash out or reinvest the money into a new CD with a higher yield. For example, when the 3-month CD matures, you could use the $2,526 (principal plus interest) to open a new 7-month CD at 5.40% APY. Similarly, when the 13-month CD matures, you could roll those funds into a 15-month CD. By doing this repeatedly, you would eventually have several 15-month CDs, each maturing a few months apart.
What are the benefits of a CD ladder?
A CD ladder offers several advantages for savers who want to balance liquidity and returns:
- You can take advantage of higher interest rates on longer-term CDs while having some funds earn predictable rates for shorter terms.
- You can reinvest the money from shorter-term CDs into new accounts to lock in higher APYs if interest rates rise.
- You can access some of your money every few months without paying a penalty fee, which can be useful for emergencies or planned expenses.
- You can reduce the risk of losing out on potential returns if interest rates decline, since only a portion of your money would be affected.
How to Start Your Own CD Ladder
If you’re interested in building your own CD ladder, here are some steps to follow:
- Decide how much money you want to invest and how long you want your ladder to be. The longer your ladder, the more interest you can earn, but the less frequently you can access your money.
- Shop around for the best CD rates for each term. You don’t have to open all of your CDs at the same bank or credit union; however, it can be easier to do so at one financial institution instead of several. To include one or multiple Texas Trust CDs in your CD ladder, simply open a CD on our website or contact our Member Care Center at 972-263-5171 to get started.
- Open your CDs and keep track of their maturity dates. You can use a spreadsheet or an app to record the details of each CD, such as the amount, the interest rate, the maturity date and the penalty fee.
- Review your ladder periodically and decide whether to cash out or reinvest your matured CDs. You can also adjust your ladder according to your changing needs and goals.
If you’re looking for a smart and simple way to make the most of your savings while keeping some liquidity/flexibility, creating a CD ladder allows you to enjoy higher returns than regular savings accounts while still having access to some of your money every year. If you want to start your own CD ladder, feel free to contact us. We’ll be happy to help you find the best CDs for your needs and goals.
Terms & Conditions
*Rates and terms subject to change without notice. APY=Annual Percentage Yield. Member must be over 18. Member must qualify. Minimum deposits vary by CD.
