I'm 'laddering' my CDs to earn the most on my savings

A CD ladder helps me take advantage of the best CD rates without having to go too long if I need to access some of the funds.

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• Earlier this year, I moved some funds from my high-yield savings account to several CDs.
• I ladder my CDs in 3-month increments so I can get access to funds sooner if I need them.
• As the end of each term approaches, I can decide what to do with the money.

Earlier this year, I realized I had a small pile of cash sitting in my high-yield savings account. Not sure what to do, I spent a fair amount of time poking around online to learn more about the different options and interest rates.

Ultimately, I decided to keep my money in my existing account and open a couple of CDs. To earn the most of my savings and take advantage of all the best CD rates, I decided to employ the CD ladder strategy.

Laddering CDs gives you the best of both worlds

A CD ladder is when you divide up savings into different CDs, each at varying term lengths. Once a CD matures, you can either renew your CD or pull the money out. The main draw of a CD ladder is that you can earn higher interest rates than parking that cash in a standard savings account.

Because your different CDs mature at different times, a large chunk of your funds won't be locked into a single CD. This offers a bit more flexibility. If something comes up and I need to tap into part of my money, I won't have to wait, say, a year-plus for my CD term to end.

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I stash away money I don't need in the near future

I've left some funds in my main high-yield savings account in case of emergencies. That way, I won't need to preemptively tap into my CDs. If I do, I'll be dinged with a withdrawal penalty, which is several months' interest.

Thankfully, I haven't had to tap into my emergency fund in the last few months, but should I need to, the money is sitting into my main savings. It's easy for me to check how much total interest I've earned in my four CDs. This motivates me to keep saving for future expenses.

For example, I have some trips planned to different parts of the US for the rest of the year, and I've been saving each month into separate savings buckets.

I can decide what to do when each CD ends

My CDs are automatically set to auto-renew for the same term. So as I opened a three-month CD, when it matures it'll roll over into a new three-month CD. However, about a month before my CD matures, I'll receive a heads-up and reminder to make any changes.

I've staggered my accounts into three-month increments, from three months to a year. I plan on renewing them once they mature until I have a need for the money. In some cases, I'm able to receive a small bonus for renewing.

I've opted for the interest I've earned on the CD to go back into the account. That way, the interest can compound. I plan on continuing to renew my CDs until I've gone through the funds in my main savings account, or for a major purchase down the line, like a new car or a computer. But in the meantime, I'll stick to my plan.

I'm happier with the interest rates that come with early withdrawal penalties

When I was researching CDs, I looked into several options, such as no-penalty CDs. However, the terms and interest rates for those options were worse than standard CDs. I've had friends who decided on one of these CDs, but they were more comfortable with stashing their cash for a longer stint, and OK with the trade-off of having a lower interest rate.

While there are other ways I can earn more on cash sitting in my account, I've opted for a CD ladder. That way, I can enjoy higher interest rates of a CD and have the option to have access to chunks of cash every few months if necessary.

This article was originally published in August 2023.