How to Maximize Your Savings Certificate Strategy
A savings certificate is a type of long-term savings account that has a fixed interest rate and a fixed date of withdrawal, otherwise known as the maturity date.
Certificates have a variety of term lengths, ranging anywhere from three months to five years. The longer you leave your money in a certificate, the higher the interest rate will be!
If you know something is coming up in three years – say an anniversary trip, honeymoon, or a child’s tuition – you can take a lump sum, put it in a 36-month certificate, and enjoy a guaranteed rate of return while you continue to make plans!
Now don’t worry – it’s not as difficult as it might sound! Most people start with a five-year laddering plan. For example, if you have $10,000 to invest, you could put $2,000 in each certificate you open:
By following that pattern, you’ll eventually have all five certificates in 60-month terms, maximizing your interest! You’ll also give yourself more flexibility, because you can either continue re-investing in 60-month terms or wait until a certificate matures and move the balance to your checking account.
We’ve laid out this infographic to help explain:
Certificates have a variety of term lengths, ranging anywhere from three months to five years. The longer you leave your money in a certificate, the higher the interest rate will be!
Why use a certificate?
Certificates are a great solution if you have a larger sum of money that’s sitting in a checking or savings account that you may not need to access for a while. You can guarantee a higher interest rate, which means your money will grow faster over the certificate term!If you know something is coming up in three years – say an anniversary trip, honeymoon, or a child’s tuition – you can take a lump sum, put it in a 36-month certificate, and enjoy a guaranteed rate of return while you continue to make plans!
Maximize your strategy
If you’re already familiar with certificates, or maybe you want to go for gold from the start, we have a pro tip for you. It’s called certificate laddering.Now don’t worry – it’s not as difficult as it might sound! Most people start with a five-year laddering plan. For example, if you have $10,000 to invest, you could put $2,000 in each certificate you open:
- $2,000 in a 12-month certificate
- $2,000 in a 24-month certificate
- $2,000 in a 36-month certificate
- $2,000 in a 48-month certificate
- $2,000 in a 60-month certificate
By following that pattern, you’ll eventually have all five certificates in 60-month terms, maximizing your interest! You’ll also give yourself more flexibility, because you can either continue re-investing in 60-month terms or wait until a certificate matures and move the balance to your checking account.
We’ve laid out this infographic to help explain: