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Climbing the Savings Ladder

November 8, 2018

savings ladder(smaller)

Want to earn more interest for your savings than you can get from a savings account? Certificates (sometimes called term share Certificates) are a great solution. However, there is one big difference between certificates and savings accounts: time.

With a savings account, you can get your money out whenever you need it, while Certificates mature at different times (called terms.) Certificates might have terms of one, two, or up to five years. When the certificate “matures,” its term is over and you have earned the interest.

Certificates take a little longer to earn interest, but earn more than a savings account. But what if you don’t want your money tied up for three years, or five years? And what if interest rates go up once you’ve locked all of your money into a certificate? You’ll miss out on the extra savings you could have had.

Certificate laddering could be the answer you’re looking for. Opening certificates with different terms is called laddering. With laddering, you earn interest at the higher certificate rate, but you’re never far from your cash.Here’s an example. Larry has $5,000 that he wants to save. He’d like to earn more interest than he would from a savings account. But Larry doesn’t want to lock up all of his money for a long time. His credit union has a great five-year certificate rate. But Larry’s nervous that those rates might go even higher after he buys a certificate.

Larry can use certificate laddering to help him grow his savings. Instead of putting the entire $5,000 into one five-year certificate, Larry splits it among five different certificates. The certificates will mature between one and five years from now. That way, Larry can earn interest on his money, but it’s not locked up for a long time.

Larry divides his $5,000 into five different $1,000 certificates. He buys certificates with terms of one, two, three, four, and five years. As each certificate matures, Larry can move the money into a new five-year certificate. Or he can just withdraw the money.

With laddering, Larry can get money sooner if he needs it. And if interest rates go up, he can move his money into a new certificate at that higher rate. If Larry puts the money from each maturing certificate into a new five-year certificate, he can keep the savings ladder going higher and higher up!

Laddering can help you build your savings with less risk and a healthy reward. We offer great rates on certificates, as well as a higher-yield new-member certificate! You can learn more about our certificates here.

This article should not be considered legal, tax, or financial advice. You may wish to consult a tax or financial advisor about your individual financial situation.

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