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By: AgFed Credit Union

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How to Maximize Your Returns Through Certificate Laddering

 Sep 27, 2023
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Savers everywhere are rejoicing as interest rates continue their upward trend. There’s nothing better than earning higher returns on your money. One of the most potent saving tools right now is a Certificate Account, commonly called a Share Certificate.

These accounts allow you to earn significantly higher dividends than traditional savings accounts. However, many members are reluctant to lock in their funds because they fear they will miss out on even better rates down the road. So, how can you maximize your investment returns now without sacrificing higher rates in the future? It’s a unique strategy called certificate laddering.

What is a Certificate Account?

A certificate account is a type of savings account where your money is locked in for a designated timeframe or term. You cannot withdraw your money from this account during your term without incurring a penalty. In exchange for locking in your funds, you earn significantly higher interest or dividend rates than traditional savings accounts.

To illustrate how certificates function, review the following example chart:

Certificate Term

Example Dividend Rate

1 Year

2.00% APY

2 Years

2.75% APY

3 Years

3.50% APY

4 Years

4.25% APY

5 Years

5.00% APY

While each financial institution will have its own certificate terms and rates, they will typically be displayed in this fashion. Generally, longer-term certificates earn better returns. But what if you’re afraid rates will jump right after you open your certificate? To combat this fear, consider certificate laddering.

What is Certificate Laddering?

Certificate laddering is an investment strategy where you utilize a variety of certificate terms to keep your money partially liquid. The best way to explain this concept is through an example.

Imagine you have $15,000 you want to invest. Using the chart above, you see that 5-year certificates offer the highest rate of return. However, you’re reluctant to lock in your money for five years for several reasons:

  • You plan to go on a vacation in two years and want to use some of this money to pay for it.
  • You believe interest rates will continue to increase over the next couple of years – leading to higher returns if you wait.
  • You don’t want all your money locked up in case you have a financial emergency.

To combat these scenarios, you can ladder or stagger your certificates. Instead of investing all $15,000 into one 5-year certificate, your investments could look like the following:

  • $5,000 in a 1-year certificate
  • $2,500 in a 2-year certificate
  • $1,500 in a 3-year certificate
  • $2,000 in a 4-year certificate
  • $4,000 in a 5-year certificate

Your investments could be any mix of certificate terms available, but this example shows how laddering works. Even with shorter terms, certificates tend to offer greater returns than other savings options, such as savings or money market accounts.

This strategy allows you to have multiple maturity dates so that money is always available annually. If rates increase, you can roll over the investment into a higher rate once it matures.

Advantages of Certificate Laddering

Laddering certificates is a tactic used regularly by savvy investors seeking higher returns while maintaining flexibility with their funds.

  • Liquidity: Instead of locking up your money long-term, laddering gives you access to a portion of your funds annually. Once a certificate matures, you can either roll over the investment into a higher-rate certificate, withdraw the money, or invest in another medium, such as the stock market.
  • Planning: Certificate laddering provides an easy way to organize your money based on financial goals. For example, imagine you aim to accomplish the following:
  • You have a family vacation scheduled for next year.
  • You want to buy a new car in two to three years.
  • You plan to purchase a house in the next five to seven years.

You can open a certificate for each financial goal based on your timelines. Certificates are great tools because they lock in your money – forcing you to save.

  • Higher Returns: The economy constantly fluctuates, and you don’t want to miss out on higher interest rates in the future. By laddering your investments, portions of your money can become available annually – allowing you to lock in higher rates upon maturity.
  • Diversification: Certificates are a more conservative investment tool used widely by investors for portions of their portfolios. Because your money and rate are locked in for the term, certificates can help protect you against economic downturns where interest rates suddenly drop.
  • Guaranteed Returns: Certificates offer guaranteed returns, unlike the stock market, where you can lose money. Your certificate will earn the rate designated throughout your term. Plus, your account is federally insured up to at least $250,000 by the National Credit Union Administration (NCUA), a US government agency.*

We’re Here to Help!

When interest rates are climbing, investors might be hesitant to lock their money in longer-term certificates. However, laddering allows you to earn greater returns now, with the opportunity to cash in on better rates down the road.

If you have questions about laddering certificates or would like to discuss this unique strategy with a team member, we’re ready to help. Please give us a call today.


* The NCUA is the independent federal agency that administers the National Credit Union Share Insurance Fund. Credit Unions that are federally insured by NCUA offer a safe place for you to save money, with deposits insured up to $250,000 per individual depositor. Visit for additional information.

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