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Courtesy of Jackie Lam
- Right now, interest on CDs at my bank is as good as or better than high-yield savings accounts.
- I'm using several different CDs in a laddering strategy to ensure I can access money if I need to.
- My interest rates will grow over time if I don't touch the money in my CDs.
As a longtime money nerd, I'm all about finding simple ways for my money to grow. So the last few years, I jumped on stashing cash in I bonds and opened a high-yield savings account. And as we're in an environment with rising interest rates, I've also decided to open several certificates of deposit.
With a CD, I can enjoy higher-than-average interest rates as long as I commit to keeping the money in the account for a predetermined amount of time. However, the last time I had CDs was when I was fresh out of college in 2006. I was learning about different ways to make the most of my savings, and interest rates were hovering around 5%.
Back in my 20s, CDs were a hassle-free, low-risk way for me to earn a bit more money that would otherwise be sitting in a savings account. And while I'm a bit more experienced and confident with investing in the stock market, I still want to have a cash cushion on hand in case of emergencies. Here's why I'm returning to them now.
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Interest rates are rising
While I currently have my savings tucked away in an Ally high-yield savings account, with interest rates increasing, I noticed that some of the APYs for Ally's CDs are higher than the current rate for its standard savings account.
After doing my homework, I noticed that the nine-month and 12-month CDs featured higher interest rates than the savings account, and the six-month CD had the same rate. Plus, Ally was offering a promotional offer of a particularly high interest rate for its 13-month CD.
I decided to put equal amounts into a few CDs — six-month, nine-month, and 12-month CDs — and more in the 13-month CD to take advantage of the promotion.
Opening a CD was fairly simple. Since I am an existing Ally customer, I logged into my Ally account, then opted to open a CD. My accounts were open and funded within minutes.
I'm enjoying some flexibility by laddering my CDs
Another tactic that I employed nearly two decades ago that I'm bringing back is CD laddering. With a CD ladder, you put in the same amount in several CDs of varying maturity dates. Once the CD matures, you can decide to take the funds out, renew the CD for the same term, or roll it over into a new term. (Some CDs automatically renew or offer a grace period after a CD matures to make a decision.) Currently, Ally offers an automatic interest rate increase if you renew your CD, which I might do if I don't need to touch that money soon.
I love laddering my CDs because it offers the best of both worlds: a higher-than-average yield on interest and a bit more flexibility as to when I can access those funds. And as there's a chance that interest rates might increase again, I can potentially enjoy a higher interest rate on the same term down the line.
Finally, I won't have to worry about having to pay an early withdrawal penalty since I've also opened CDs for six and nine months. If something changes with my life or my priorities, I'll usually have a CD that's close to maturity. It feels like a throwback in my money ways, but opening several CDs and laddering them helps me get the most of the money that's sitting in my savings account.