Adjust Your CD Ladder to Lock in Higher Rates


So-called ladders on certificates of deposit offer a great way to maintain liquidity while taking advantage of the higher rates available on longer term issues.

Laddering involves staggering the maturity of a number of CDs so you always have access to a portion of your money. But what if you want to increase the share of your savings to which you have access? It can be costly to withdraw money prematurely from a CD, but nothing prevents you from adjusting your ladder.

Currently, rates on CDs range from an average of 1.01% for three-month certificates up to an average of 2.47% for 60-month certificates. Both averages represent declines from previous weeks, according to rate data from, but could still be headed lower. "The federal funds rate is targeted at a range of 0% to 0.25%, and it's safe to say that rate is staying put for awhile," says Doug Johnson, vice president of Risk Management Policy at the American Bankers Association. "And that means CD rates will stay fairly low and will possibly go somewhat lower for the short term."

When rates are likely to head lower, it makes sense to have longer-term CDs in your ladder. That way, you can lock in an advantageous rate for a relatively long time as new CDs are likely to offer lower rates. Alternatively, if you think rates will head higher, it makes sense to shorten the maturities to avoid locking in a low rate for the long term.

You can change your ladder one rung at a time. Say you have three six-month CDs that will mature at two-month intervals, and you’re convinced rates will head lower. As each CD matures, you can use the principal to buy higher-interest certificates with longer maturities --say, nine months. Just be sure not to purchase so many long-term CDs that you impair your cash flow. (For a refresher on how to set up a CD ladder, read here.)

If you want to maintain the current intervals on your ladder, you may want to change institutions rather than adjust your ladder. Rates vary widely among lenders. For instance, in Michigan, Flagstar Bank (Stock Quote: FBC) offers 3.75% interest on a $500 12-month CD, whereas Chemical Bank (Stock Quote: CHFC) gives only 2.5% on a $100 12-month CD and Citizens Bank (Stock Quote: CRBC) pays 3% on a $1,000 12-month CD.

To find rates in your area, search by entering your ZIP code on the CD section of MainStreet's partner site,

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