What is a CD ladder?

Illustrative stack of coins with arrow pointing upward

A CD ladder is an investment strategy with both short- and long-term benefits. This method combines shorter term Certificates of Deposit (CDs) that offer lower rates and  more frequent access to your money, with longer term CDs which earn more but offer less access to your money. 

Creating a CD ladder is easy to do. It can be set up through the Credit Union using share term certificates (STCs) or with CDs from a bank. To create a CD or STC ladder, purchase several certificates with staggered maturity dates. You can set up the ladder so you have certificates maturing on a monthly or annual basis. As each certificate matures, you can either put the money back into the ladder, or use the funds.

How to build the ladder

Here’s an example of an annually-maturing STC ladder: Let’s say you purchase five $1,000 STCs. The first STC will mature in 12 months, the second in 24, the third in 36, the fourth in 48 and the final certificate will mature in 60 months. After a year has passed, your 12-month certificate has matured. If you don’t need the funds, you can put the money back into the ladder by purchasing a new 60-month STC. From then on, you add a new rung to the ladder with the purchase of a new 60-month STC every year as your next certificate matures.

Your dividends are automatically paid monthly by transfer from the STC to another deposit account. If the STC term is six or 12 months, you may request that your dividends be paid when the STC matures.

This technique allows you to not only lock in some higher rates associated with long-term STCs, but the short-term STCs mean you are able to take advantage of the market, should rates rise. Additionally, since you don’t tie up all your money,  you are never more than a year away from at least some of it. The early withdrawal penalty for all STCs is 90 days’ dividends or the actual dividends earned, whichever is less.

The minimum deposit to open a certificate is $250 at LGFCU and the dividend rate is fixed during the term. Log in to Member Connect to set up your STC ladder.

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