Small Ladders Reach to Bigger Savings

Laddering certificates of deposit/share certificates is a tool that big savers use to keep their money growing while still accessible if needed. But small savers can use the tool, too--and become big savers in the process.

Share certificate laddering works simply: You divide the amount you have to save among certificates of varying maturities. As each certificate matures, you turn it over to a longer maturity. Eventually, all your certificates are earning a higher yield at a longer maturity. And because you have a certificate maturing regularly, you can cash it in if necessary.

Here's a common example for someone starting with $5,000. Put $1,000 each into certificates maturing in one, two, three, four, and five years. One year later, your first certificate matures, yielding $1,000 plus dividends earned. If you need the money, you cash in. If you don't, you reinvest in a five-year certificate, at a higher dividend yield. Each year, as a certificate matures, you reinvest in a new five-year certificate. By the end of the fourth year, all your money is earning at the five-year rate.

Are you starting with less? You could invest smaller amounts in three-, six-, 12-, 18-, and 24-month certificates. Again, as each matures, reinvest it for the longer term certificate until all your certificate money is earning at the higher rate.

You can ladder any way you wish to meet your financial goals. For help starting your certificate ladder, contact Harvard University Credit Union.