The COVID-19 pandemic shot us into an environment of economic uncertainty and historic low interest rates. The low-risk nature of share certificates (known in the banking world as certificates of deposit, or CDs) is attractive to many, but how should you structure your certificate portfolio when the future of rates is so uncertain?

Certificate Ladders Offer Flexibility at the Best Rates 

A certificate ladder is an excellent way to invest in longer-term certificates without tying up all your money for years. The ladder strategy utilizes multiple certificates with staggered maturity dates so that you have certificates regularly maturing and cash becoming available if it’s needed. If you don’t need the liquid funds at maturity, let the certificate roll over and start a new term.

Building a Ladder from Scratch 

If you’re just starting with certificates or laddering, this is how to do it. To build a five-year ladder with five certificates, you’ll initially invest in a one-year, two-year, three-year, four-year, and five-year certificate. Every time one of those certificates renews, you’ll renew as a five-year certificate, and in four years’ time, you’ll have five, five-year certificates with maturities staggered so that one comes up for renewal every year.

That means you have both the advantage of the higher rates typically earned by longer term certificates AND the flexibility of annual access to cash.

Adjusting Your Ladder Strategy for the Current Environment 

Whether you’re building your ladder for the first time or already have one, you’re probably wondering if there is a bettering laddering strategy for times like these. There’s no clear-cut answer, and you should consult your financial advisor for advice personal to your situation, but here are some factors you should consider when deciding your strategy:

  1. No one can predict the future with certainty. You can make educated guesses about what interest rates might do, but the nature of investing is uncertain. There are no guarantees. It’s important to keep that in mind and always consult a financial advisor before making big decisions. 

  2. Investing in certificates with the best rates right now is the best return you can get right now. It’s obvious, but true. If you have money to invest right now, today’s rates are what you have to work with. Investing in a certificate term with the highest rate (usually the longest term) is one strategy that focuses on today rather than predicting the future and it may be the strategy that appeals most to you.

  3. Interest rates right now are low, even for the longest terms. Rates right now are, frankly, crummy across all terms. The experts agree that rates aren’t going to have any dramatic hikes in the near future, but if you have reason to feel optimistic about rates improving sooner than five years, you might not want to tie up your certificates at today’s very low rates for five years. You might consider renewing your maturing certificates at three-year terms instead while closely monitoring the economic outlook over the next few years. Right now, the rate difference between a three and five-year term is pretty small in most instances, so the benefit of being able to roll over into a better rate sooner could outweigh the slightly higher return you’d get from the longer term.

No Matter the Term, Certificates are a Safe Choice

I want to reiterate here that no matter what strategy you pick, interest rates in the future are a guessing game. What’s great about share certificates, however, is that they are a safe investment no matter what strategy you choose. There is a guaranteed return as long you don’t close the certificate early, incurring fees. As a deposit account, share certificates are insured up to at least $250,000.

Want some help setting up your own certificate ladder? Give us a call Monday through Friday, 8:30 AM – 5:00 PM for help opening your certificates over the phone.

Stephanie Groller

Stephanie Groller

Stephanie is the Branch Experience Leader at GOLD. She supports and directs Member-facing branch staff, empowering our team to provide all Members with a five-star experience. She strives to inspire and motivate Members and staff alike to achieve their aspirations. Playing a part in the success and growth of GOLD and our Members is what Stephanie considers the ultimate reward.

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