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Certificate Laddering Guide

So you're ready to invest but looking for something with accrued interest and minimal risk? Well, certificate laddering might be the option for you!


Once you've worked to establish a strong financial base and now have extra money to invest, the decision where to invest those funds can be tricky. If you're seeking an approach that allows accrued interest with minimal risk, consider certificate laddering. Certificate laddering involves investing a lump sum in multiple certificates with different maturity dates. 

What are Certificates?

Certificates, also known as Certificates of Deposit (CDs), are savings accounts with a fixed interest rate over a specified time period. They are insured up to $250,000 by the National Credit Union Administration. Commonwealth Credit Union also insures our certificates with an extra 100,000 through Excess Share Insurance (ESI).

Certificate Laddering Basics

Certificate laddering works by dividing your investment into multiple certificates with varying term lengths. You stagger the maturity dates at equal intervals, allowing you to benefit from interest rates while maintaining access to funds. When a certificate matures, reinvest the funds in a new one with a term matching the longest-term certificate from the initial set. 

For example, if you have $5,000 to invest, divide it into five equal portions of $1,000 and open certificates with terms of 12, 24, 36, 48, and 60 months. As each certificate matures, roll over the interest into a new five-year certificate. Here’s what the process would look like: 

Step 1: Open Certificate

With an initial $5,000 investment, spread your finds into five certificate:

  • $1,000 in a one-year certificate.
  • $1,000 in a two-year certificate.
  • $1,000 in a three-year certificate.
  • $1,000 in a four-year certificate.
  • $1,000 in a five-year certificate.
Step 2: Reinvest Upon Maturity

Upon the maturity of a Certificate of Deposit (CD), reinvest the funds into a new five-year certificate. 

Here’s how that would look:

  • $1,000 + one year of interest in a five-year certificate.
  • $1,000 + two years of interest in a five-year certificate.
  • $1,000 + three years of interest in a five-year certificate.
  • $1,000 + four years of interest in a five-year certificate.
  • $1,000 + five years of interest in a five-year certificate.

Following this practice for five consecutive years will result in a ladder with five 5-year certificates, with one maturing each year.

Keep Savings Handy

An important thing to keep in mind is that while certificate ladders do offer flexibility, they are not as liquid as cash. You should still try to maintain at least two months of living expenses in a savings account for emergencies before pushing portions to a certificate ladder. This safeguards you in emergencies and prevents any lost interest that would occur if you prematurely withdraw certificates. Commonwealth Credit Union is equipped to offer you the right savings account for your personal finances. Find out which savings account is right for you. 

The common practice with certificate ladders is to set them up with round intervals, but you can always set it up in a way that works best for you! Start by taking a look at all of the CDs Commonwealth Credit Union has to offer. Then, consult with one of our expert team members to find out and discuss which certificates are best for your personal financial situation, and set them up for laddering!