Saving & Budgeting

How does certificate laddering work?

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

Key takeaways:

  • Certificate laddering helps you take advantage of higher earnings while still giving you access to your funds over time.
  • The benefits of laddering can add up because you can spread your investment out over longer terms, which have a higher APY.
  • You can configure a laddering strategy to meet your specific savings goals and timing.


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? Let’s learn about laddering.


First, what is a certificate account?

Most 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 as 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 until your term ends.

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 a long term, open several separate smaller certificate 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 and allows you to diversify. 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 increase. For example, if APY rates drop, only your newer rollover investment will be impacted when you invest in a new certificate. And if rates are rising, you will be able to take advantage of the higher rates as each certificate matures and is reinvested.

Certificate laddering is an easy way to boost your savings

Laddering is easy, and your laddering strategy can be configured to meet your specific savings 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?

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