Hanscom FCU’s certificate accounts are a smart and safe way to reach your savings goals while letting you earn a great rate. However, you can earn even more when you use a laddering strategy with your certificates.
A laddering strategy simply means putting your money in multiple certificates that mature at different times instead of putting all your money in a single certificate that matures at one time. But, you might be asking: why would anyone want to do this? Don’t worry, it’s much less complicated than it sounds and can be greatly beneficial to your savings.
What are the benefits of a certificate laddering strategy?
When interest rates are climbing, a certificate ladder lets you take advantage of rising rates. You can take your maturing certificates and reinvest them into new certificates that are earning a higher dividend rate.
And if interest rates happen to fall, you’re still safe because you still have money locked into certificates with higher rates. This laddering strategy also gives you more availability with your funds if you need them because you’ll always have a certificate maturing on a regular schedule.
How does a certificate laddering strategy work?
To explain how this strategy works, let’s use a step-by-step example:
- Let’s say you have $10,000 of long-term savings. Instead of pouring it all into a single 60-month certificate, with a laddering strategy you put $2,000 into five separate certificates: a 60-month, a 48-month, a 36-month, a 24-month, and a 12-month.
- When your 12-month certificate matures, you will roll it into a new 60-month certificate account.
- Repeat the process as each of the other four certificates matures, rolling them into 60-month accounts as they mature.
In this way, you’ll have more control of your money with the rolling liquidation as you renew each share certificate. You’ll also experience the benefits of higher rates once you’ve renewed all of the certificates used in this example, and you’ll have a 60-month certificate maturing every year after this initial round of renewals.
The bottom line: Are certificate laddering strategies worth it?
Ultimately, you’ll have to decide what the best savings strategy is depending on your situation, but there are very few drawbacks to using a certificate ladder. The only real drawback is potentially earning less money if you renew shorter-term share certificates when rates are less advantageous, but that’s simply “missing out” on potential earnings rather than losing money.
Certificate laddering offers greater control over your money, and generally higher rates overall once you renew shorter-term certificates into longer ones. It’s a great method to maintain easy access to your savings with no penalties, and have steady, predictable earnings on your deposits at the best rates.
Hanscom FCU can help you climb a little faster toward your financial goals with our great rates on certificates. Open a certificate online, call us at 800-656-4328, or stop by one of our branches to get a leg up on your savings today.
*This article has been updated with new information for 2023
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