You did all the hard work and made all the smart decisions— joined the military, bought a home and had a family. You even thought ahead and put a little aside for a rainy day. But are you maximizing the return on your hard earned savings? Do you have a savings strategy beyond stashing away a little here and there? Think about using certificate laddering. It’s a clever way to save for specific goals—even in a low rate market. You can use it as a savings option that provides a safety net and fairly quick access to emergency funds if needed.

Certificates (sometimes referred to as Certificates of Deposit or CDs) are different from savings accounts in that they have a specified term. Short and long terms are often made available (example: monthly, quarterly, or one to five years) and usually come with a fixed dividend rate that is higher than the standard savings account rate. The goal of certificate laddering is to take advantage of current and future dividend rates since not all of your money is locked in at one rate. Also, you’re never far away from being able to obtain a portion of your money. The best part is, you can always add to your certificates as they mature and watch your savings grow!

The terms you choose are really dependent on your savings goals. For short-term goals such as saving for a new car or home improvements, you can space your terms three months to twelve months apart. As your certificates mature, you can turn around and renew them for three months to twelve months each. The key is, whatever term you choose, you should renew all certificates for that same term. With this strategy, you’ll have access to your funds on a specific timetable or ladder of three, six, nine, or twelve months; depending on the term you set.

Or you can use a five-year ladder for longer-term goals such as saving for your kid’s college fund or a new home. You’ll still have access to your money without penalty every time your certificates mature. You can keep the ladder going on for years as you create savings and receive higher dividend rates in rising rate environments. At maturity, if you need some of the money, you take what you need and renew the rest. If you find that you have a little extra cash, you can add it to your certificate as well to keep your certificate ladder active.

Starting a Certificate Ladder is easy. Let’s use $10,000 and build a sample 5-year ladder.

Divide the $10,000 evenly and open 5 certificates each with ascending terms*.

$2,000 in a twelve-month certificate at .75%
$2,000 in a twenty-four month certificate at 1.25%
$2,000 in a three-year certificate at 1.50%
$2,000 in a four-year certificate at 2.00%
$2,000 in a five-year certificate at 2.25%

In twelve months, your first certificate will mature. At that time, you will have approximately $2,015. If you don’t need that money, you renew it for a five-year term at a (hopefully) higher rate. This five-year certificate will mature at year six of your plan, keeping the ladder going. When your twenty-four month certificate matures, you will renew that one for five years as well. It will mature at year seven of your plan. This cycle will continue to repeat itself if you stay the course.

As a result, every twelve months you will have a maturing certificate. As you continue with your certificate ladder, your yields will start to add up to something more substantial, especially if dividend rates are rising as you renew. At the end of five years, your balance using the laddering strategy just described will be approximately $11,041. Using a single rollover certificate strategy, your balance would be approximately $10,382. As you can see, you earn $659 more by using the certificate laddering method.

To test out a strategy based off your personal goals, check out Navy Federal’s CD Ladder Calculator.

*All rates are hypothetical and used for illustrative purposes