We all want our money to work harder for us. An investment strategy that is regaining popularity among savvy savers is deposit laddering. This financial strategy allows you to take advantage of higher rates while still maintaining varying intervals of accessibility to your funds. While laddering can cross over a variety of deposit accounts it can be found to be especially worthwhile with deposits into certificates of deposit – more commonly referred to as CDs.
While this deposit concept is catching on again, it’s not new to the credit union industry which prides itself on its commitment to serving members instead of benefiting bank shareholders. By choosing a credit union for your deposit strategy, you can take advantage of higher yields without sacrificing accessibility to your funds. And with MIDFLORIDA as your credit union, that often means you’ll enjoy above market options with fewer fees and potentially higher earnings.
So what is deposit laddering?
Laddering is a simple yet effective investment strategy where you divide your funds between multiple deposit products or CDs with different maturity dates that can provide you with rolling access to funds. This also enables you to take advantage of ongoing savings specials as they become available as your money is not tied up in one type of account.
Here’s an example:
Take a $10,000 lump sum and divide it into five equal portions of $2,000. Take one portion to deposit into higher earning but more liquid (meaning ongoing access) account. Then take the remaining portions to purchase CDs with maturities at two years, three years, four years and five years. As each CD matures, it can be rolled over or renewed into a longer term CD which keeps your deposits spread out and renewing at a variety of intervals and earning levels.
Five Reasons You Should Consider Laddering Your Deposits:
- Provides flexibility! With laddering, you have access to your funds at varying intervals, which helps avoid any early withdrawal penalties on CD type products while also keeping your cash accessible for an unexpected expense.
- Earns higher yields! Electing to stratify funds across a variety of deposit products including CDs will often provide a higher return than on a regular savings account. Laddering provides you higher rates on each individual account and provides you with a higher blended yield for your overall deposit strategy.
- Provides diversification! By dividing your funds between multiple deposit products, you have created different levels of income on each product and are not at risk of having your funds locked into one single investment.
- Creates income! Earning interest on your deposits can create income for you, especially when you are able to include CDs as part of your laddering process. And as CDs mature, you can roll them over into a longer term to provide a steady stream of interest income.
- Simplifies wealth management! This is especially true when using CDs for laddering as the products require only minimal management and can be considered as an autopilot type investment. Additionally, having a ladder of deposits with one institution versus a series of single product across a number of financial institutions has its benefits too.
Laddering is a tried-and-true investment strategy that can help you maximize your returns while mitigating concerns related to access and of course risk. Whether you're saving for a down payment, building an emergency fund, or simply trying to grow your wealth, laddering your deposits can help you achieve your financial goals while not locking up all assets into one term or one product.
Speak to any MIDFLORIDA member service representative at a branch or by phone to have them help you determine the best product mix to build your deposit ladder!
