How To Ladder Share Certificates


A share certificate or certificate of deposit (CD) is one of the safest investment options available because you receive a guaranteed rate of return as long as you don't withdraw funds before the certificate matures. Additionally, your funds are federally insured. However, the disadvantages of locking your money into a share certificate or CD is not knowing if rates are going to rise or fall. If you choose a shorter term, such as three to six months, and rates increase, you can pull your money out in just a few months to reinvest it at a higher rate. The disadvantage is that your rate will be much lower than a longer-term certificate. On the other hand, if you invest in a longer-term, higher yielding certificate, you might miss out on higher dividends if rates increase during the term.

One strategy to get higher yields and sufficient access to your cash is through share certificate or CD "laddering." Rather than putting all of your funds into one certificate with one rate and one maturity date, laddering incorporates "dollar-cost" averaging by investing in multiple certificates with varied terms.

Here's How Certificate Laddering Works

You have $25,000 to invest. You go to your credit union and open five share certificates with $5,000 in each—1-year, 2-year, 3-year, 4-year and a 5-year term. When the 1-year certificate matures, you reinvest that money in a 5-year certificate because the 5-year now has four years left until it matures. As each certificate matures, you reinvest it into a 5-year certificate. That way, each year you have access to a certain portion of your investment and can possibly reinvest it a higher rate. Because a certain portion of your funds become available every 12 months, you have the option not to reinvest if the need for cash presents itself. Laddering is not limited to 1-year to 5-year certificates. You can invest on a smaller scale with 3-, 6-, 9-, 12- and 18-month certificates. A portion of your income will become available or "liquid" in shorter intervals. A longer term ladder will earn higher rates, but will tie up your money for a longer period of time.

Let's compare a more traditional investment with the certificate laddering strategy using average certificate rates from 2009. (source:

Share Certificate Laddering Investment

($25,000 investment: $5,000 each into a 1-, 2-, 3-, 4-, and 5-year certificate and then reinvested $5,000 each into a 5-year certificate as each certificate matured for five years)

Results Summary 
Total to invest    $25,000.00
Frequency of certificates maturing 12 months
Amount in each share certificate $5,000.00
Share certificates in your ladder 5
Interest is compounded compound annually
Share Certificate Ladder $29,145.07


Share Certificate Ladder 
Term APR Starting Amount Balance at Maturity
1 year 1.92% $5,000.00 $5,096.00
2 year 2.40% $5,000.00 $5,242.88
3 year 2.89% $5,000.00 $5,446.15
4 year 3.14% $5,000.00 $5,658.20
5 year 3.33% $5,000.00 $5,889.82

(source: Financial Calculators, KJE Computer Solutions, LLC)

At the end of 5 years, your balance using share certificate laddering will be $29,145.07. Compare this to if you had invested all $25,000 in to a 5-year share certificate your total would be $29,449.11. So why would you ladder? While you gain $304.04 in this example with the traditional investment, it does not account for the fact that rates are constantly changing. Tying up all your money in a 5-year share certificate at one time means you would not have liquid cash when you need it, nor could you take advantage of higher rates when they become available and therefore you could miss out on higher returns.

The laddering strategy can provide a steady stream and more stable source of income than a single certificate investment, especially if you are trying to preserve capital and don't want too risky of an investment. To set up your certificate ladder, first determine how long you want to lock in a portion of your funds. If rates are generally low, you may not want to invest in a long term, so choose your terms wisely. You'll pay a penalty if you withdraw funds before the maturity date. In uncertain times, the ladder strategy works because you can shield your money from unnecessary risk and still receive a competitive rate.

Woman Looking at Sunset over mountains

Credit Union Near Me

UNIFY is always near you with 24/7 call center access and branches nationwide including Los Angeles, Orange County, Plano, Texas, and Northwest Arkansas.

Find a branch near you
Young adults snacking and relaxing

FREE Checking

Yep… we said FREE. Convenient and flexible, our FREE Checking account is the no-fuss way to manage your money.

Get FREE Checking