How to build savings with a Certificate account ladder

Certificate accounts are a great way to park your savings and earn better interest than you would with a savings account. The longer the term on your Certificate account, generally the better the interest rate – a 60-month Certificate account will likely pay better interest than a 6-month Certificate account. The drawback is that you can’t withdraw your principal (the amount you initially invested) prior to maturity without paying a fee.

That’s where the Certificate account ladder comes in. A Certificate account ladder leverages the best features of a Certificate account (interest rate and safety) while mitigating the restrictions on withdrawing the funds.

You build a Certificate account ladder by investing money into multiple certificates that mature at staggered intervals. Let’s say you have $5,000 to work with. One simple way to build a ladder is to deposit your money into five Certificate accounts with terms of varying length. As each Certificate account reaches maturity, you can redeposit them into a new Certificate account.

  • $1,000 in a 12-month Certificate account

  • $1,000 in a 24-month Certificate account

  • $1,000 in a 36-month Certificate account

  • $1,000 in a 48-month Certificate account

  • $1,000 in a 60-month Certificate account

At the end of the first year, when your 12-month Certificate account matures, you reinvest that money into a new five-year Certificate account. When the second Certificate account matures the next year, you do the same, and so on until you have five, 60-month Certificate accounts with one maturing every year. If you don’t need the money, you can keep reinvesting into your Certificate account ladder as the certificates mature.

If waiting a year for your Certificate account to mature feels too long, you could create a short-term ladder by making these adjustments:

  • $1,000 in a 6-month Certificate account

  • $1,000 in a 12-month Certificate account

  • $1,000 in an 18-month Certificate account

  • $1,000 in a 24-month Certificate account

  • $1,000 in a 30-month Certificate account

When your 6-month Certificate account matures, you reinvest that money into a new 30-month Certificate account. When the second Certificate account matures at 12 months, you do the same, and so on until you have five, 30-month Certificate accounts with one maturing every six months.

Certificate accounts are attractive because of their security and guaranteed returns, and saving your money in a Certificate account or a series of Certificate accounts can be a savvy financial move. It’s one way to make your money do more for you.

 

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