Build your financial freedom

Retired couple at coffee shop
« Return to Learn

Making smart investments to grow your savings and build financial freedom can feel like a complicated process. Simple strategies like CD laddering can help you easily establish a savings strategy that will help you move toward the future on stronger financial footing.

CD laddering is a technique that allows you to earn higher interest rates. Instead of putting all your extra funds into one CD, this method involves buying several smaller CDs that mature at different times. As they mature, you reinvest the proceeds into CDs with longer terms and higher rates.

Let’s say you have $5,000 to invest in new CDs. Here’s how the laddering method might work.

Step 1: Put $1,000 each into five different CDs — one that matures in 12 months, one in two years, one in three years, etc., so you have a CD that will mature every year for the next five years.

Step 2: When the first one matures, reinvest the funds into a new five-year CD. Rinse and repeat each year.

Step 3: After five years, if you haven’t had to spend any of your funds, you’ll have a five-year CD maturing each year for the next five years. Continue reinvesting at increasingly higher rates, if possible.

Laddering can help you get the highest CD rates while still making money available to you annually with no penalties. It can also help you take advantage of rising interest rates. Generally, when rates are heading upward it’s a good time to invest more funds in shorter-term CDs. When rates look like they’re going down, it makes the most sense to lock in the current higher rate by putting your money into a longer-term CD.

Ultimately, your CD laddering strategy should be tailored to your unique needs and should take into account factors like your investment time frame and how much money you need to access regularly. And if you still don’t feel comfortable tying up your money, there are savings accounts that offer similar interest rates but without the long-term commitment. A money market account, for example, offers a slightly lower rate than a CD but allows you to make as many withdrawals as you want.