Certificates of deposit often give you a better rate of return than other savings accounts. You choose a term—typically from three months to five years—and when your CD matures, you get your money back plus the interest it earned.
With most banks, you’ll get a better interest rate on a five-year CD than on a three-month one. But what if you don’t want your money tied up for five years? What if CD rates go up in six months and you’re locked in at a lower rate? That’s where CD laddering can help.
CD laddering is a great way to earn more interest and still have access to your money.
How it works
Let’s say you have $10,000 that you want to save. Rather than opening a five-year CD with all of your money, you would put:
- $2,000 into a one-year CD
$2,000 into a two-year CD$2,000 into a three-year CD
- $2,000 into a four-year CD
$2,000 into a five-year CD
This is your CD ladder. At the end of the first year, you would use the money from your mature 1-year CD to open a five-year CD. This allows you to get the best rate offered at that time. Do the same thing every year when your next CD matures. Remember, with terms like, 3, 6, 9 and 18 months, you can access your funds even more frequently if you need to.
Benefits of CD laddering
CD laddering is a smart way to save for two reasons:
- By choosing the longest term available when you renew your CD, you will earn more interest.
- You’ll have more frequent access to your funds, which can help you budget and avoid early withdrawal fees.
Nationwide Mutual Insurance Company, Nationwide Mutual Fire Insurance Company, Nationwide Life Insurance Company, Nationwide Life and Annuity Insurance Company and Nationwide Investment Services Corporation are affiliates of Nationwide Bank. The insurance products and services offered through these affiliates of Nationwide Bank are not insured by the FDIC or any federal government agency, nor are they guaranteed by, deposits of or obligations of Nationwide Bank. The products and services offered through Nationwide Investment Services Corporation are subject to investment risk, including possible loss of value.
Programs (including, without limit, fees, rates and features) are subject to change without notice.
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Nationwide Bank, Member FDIC, is a federally chartered savings bank. Lines of credit, loans and credit cards are not insured by the FDIC.
- Certificate of Deposit Ladder (ally.com)
- A CD Laddering Strategy Might Be Right for You (ally.com)
- CD Laddering: How it Works, and How It Can Maximize Your Savings (community.ally.com)
- The 5 Best High Yield CDs (wisebread.com)