How to Follow a Certificate Ladder to Reach Your Savings Goals

January 24, 2019

Did you make building your savings a 2019 New Year’s resolution? Making a savings goal is not only one of the most common New Year’s resolutions, it’s an important key to financial success. If you’re looking to get more out of your savings goals, laddering Certificates is a great way to effectively reach your goals.

What is a Certificate Ladder?
Laddering Certificates is a type of savings plan in which you open multiple Certificates at the same time, but each with different terms. This strategy benefits your short- and long-term goals at the same time, as each Certificate matures at different times.

Why is a Certificate ladder a good idea? 
There are various Certificate terms and options with different benefits. A Certificate Ladder allows you to take advantage of the best of both long- and short-term Certificates. Let’s say you would like to have more frequent access to your money, but you still want to earn dividends on those funds. At the same time you want to save for long-term goals and earn higher dividends. 

Opening a short-term Certificate for a few months to a year allows you to access your money sooner, but at a lower dividend rate. Opening a long-term Certificate for a few years allows you to earn more on your savings, but you will have less access to your money. Laddering is a great idea to combine the benefits of both short- and long-term Certificates as you earn more on your long-term savings, but also have more frequent access to a portion of your savings.

How do I start laddering Certificates?
Building a Certificate Ladder is simple. Even if you’ve never opened a Certificate before, it’s easy to get your savings organized with these easy steps. First, decide the total amount you want to put into savings. Let’s say you would like to save a total of $6,000. Next, decide how many Certificates you are comfortable opening to start your ladder. It could be just two or three, or maybe you want to open five at one time. Whatever you decide, it’s important to understand the Certificate maturing process and to make sure you are comfortable with the maturity dates. 

Once you decide how many Certificates you would like to open, divide your funds equally between each Certificate. For example, let’s say you’re opening three Certificates (a 1-year, 2-year, and 3-year Certificate). You’ll put $2,000 in each Certificate. Then, you can sit back and wait for your Certificates to mature. You can also keep contributing to each Certificate, but the total additions must not exceed $10,000 per year. 

What do I do once a Certificate matures?
That’s up to you! If you don’t plan to spend the money, you have the option to put those funds into a new 3-year Certificate to keep climbing the Certificate Ladder. This method allows you to have frequent access to your funds on a yearly basis, while also earning higher dividends on your savings in long-term Certificates. If you’ve been saving for something in particular, you may want to spend the first Certificate right away. Sometimes it can be more fun to save when you have a specific goal in mind, like a vacation or down payment for a car or house.

MSUFCU offers various Certificates with flexible terms to suit any of your savings needs. Opening is a Certificate is easy! You can open one in minutes via the MSUFCU Mobile app or ComputerLine. Click here to learn more about MSUFCU Certificates.

Tags: Savings, Tips and Tricks, Money Management