CD laddering | Maximize your savings | U.S. Bank (2024)

FAQs

Is laddering CDs a good idea? ›

A CD ladder can help you build a predictable investment return. It also provides the potential to earn better returns than you would with a single CD and the ability to access a portion of your savings each time a CD matures.

The cons of CDs

With a savings account, the money is easily accessible in case of a financial emergency or a change in spending priorities. With CDs, you typically can't withdraw the money whenever you want—at least not without paying a penalty.

You can find 6% CD rates at a few financial institutions, but chances are those rates are only available on CDs with maturities of 12 months or less. Financial institutions offer high rates to compete for business, but they don't want to pay customers ultra-high rates over many years.

Multiple CDs can help you capitalize on interest rate changes if you believe CD rates will change over time. You might put some cash into a higher-rate 6-month CD and the remainder into a 24-month bump-up CD that allows you to take advantage of CD rate increases over time.

Cons of investing in CDs

Early withdrawal penalties can cost a flat fee or a percentage of the interest earned, depending on the financial institution. Inflation can hurt returns: You'll need to be careful when investing in CDs during changes in interest rates or you could effectively lose money.

Unlike how the stock market or a Roth IRA can lose money, you typically cannot lose money in a CD. There is actually no risk the account owner incurs unless you withdraw money before the account reaches maturity.

Market Crashes and CDs

Even if the market crashes, your CD is still safe. Your interest rate won't change, and your money is still insured. But, keep an eye on interest rates. After your CD term ends, you might find that new CDs have lower rates if the economy is still struggling.

While there aren't any financial institutions paying 7% on a CD right now, there are other banks and credit unions that pay high CD rates. Compare today's top CD and savings rates.

Which bank gives 7% interest on savings accounts? ›

As of September 2024, no banks are offering 7% interest rates on savings accounts. Two credit unions offer high-interest checking accounts: Landmark Credit Union Premium Checking with a 7.50% APY and OnPath Credit Union High Yield Checking with a 7.00% APY.

CD Rates Forecast 2024

The CME FedWatch Tool, which measures market expectations for federal funds rate changes, shows that most experts expect rates to sit between 4.50% and 5.25% by December 2024.

How much interest would you make on a $5,000 CD? We estimate that a $5,000 CD deposit can make roughly $25 to $275 in interest after one year. In comparison, a $10,000 CD deposit makes around $50 to $550 in interest after a year, depending on the bank.

Most jumbo CDs require a minimum deposit of $100,000, though some jumbos can be opened with $50,000. All CDs and rates in our rankings were collected, verified, and available to open as of Sept. 13, 2024.

CD laddering is a strategy that involves investing in multiple CDs with different maturity dates. It's a simple but effective way to take advantage of an interest rate environment that's always changing, no one wants to guess wrong on their deposit rates.

You typically want to aim for five “rungs” of your ladder with CDs having every single term length from one year to five years.

Step 1: Open Different CDs

Maturity dates for CDs are typically set at lengths such as 3 months, 6 months, 1 year, or 5 years. Rather than putting the entire $20,000 in one 5-year CD, you put $5,000 in each of four CDs. One will mature in 1 year, then another at 2 years, the third in 3 years, and the last in 4 years.

Most 5-year CDs offer the ability to earn a high APY. Right now you'll find top rates of between 3.75% and 4.35% APY. That's high compared with the current national average on 5-year CDs (1.38%!) as reported by the FDIC. While getting a high APY is important, it's not the only factor to take into account.