Which CD strategies are best for long-term savers? What the experts say

Certificate of deposit (CD) accounts are a great way to grow your cash without taking on much risk. These deposit accounts can also help you lock in high interest rates when rates on other savings products might be waning, as the fixed interest rates on these deposit accounts won’t change during your CD term.

Not all CDs are created equal, though. Some offer better rates, others more flexibility and some offer a happy medium between the two, so it can be tough to determine which option you should choose. For many savers, though, finding the right CD strategy is key to maximizing the returns — particularly if you want your CDs to deliver over the long haul.

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Which CD strategies are best for long-term savers? What the experts say

Are you eyeing CDs to help achieve your long-term financial goals? Here are some strategies experts say can help.

Build a CD ladder

CD ladders are one of the most commonly used strategies for those focused on long-term results. For this approach, you take your capital, divide it up and open up several CDs in varying term lengths. Then, once each account matures, you either cash it out (and use the money as needed), or you take the money and put it into a new CD — with a new rate and CD term — instead.

This gives you “exposure to short- and long-term CDs at any given time,” says Stephan Shipe, a flat-fee financial advisor and owner of Scholar Financial Advising. 

A laddering strategy can also help with liquidity, far-off financial goals and interest rate fluctuations. 

“A well-structured CD ladder balances liquidity with higher long-term yields,” says Mary Grace Roske, senior vice president at CDValet.com and Seattle Bank. “You might end up with a higher average yield than if you just picked a single CD of the same average terms — like splitting funds between one-, two-, and three-year CDs instead of going all in on a two-year.”

There are other perks, too, Roske says. 

“If rates go up, some of your CDs will mature sooner, giving you a chance to reinvest at higher rates instead of being locked into a long-term lower rate,” she says. “Ladders can also help meet an expected cash flow need — tax payments, tuition payments, etc.”

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Try a CD bullet chain

Another option is the CD bullet strategy, which involves opening several CDs that will mature around the same time. For example, you might open a 5-year CD now, a 4-year CD next year and a 3-year CD the year after that. Then, in 2030, you’ll have the returns of all three CDs to use to your advantage.

“This helps you stay disciplined when trying to achieve a specific goal by a specific date,” Roske says. “At maturity, you’re rewarded with a lump sum ready when you need it.”

The CD bullet strategy can also offer an interest-earning advantage, depending on the market. If rates increase after you open your first CD, for instance, you can take advantage of those higher rates when opening your subsequent CDs. This will allow you to earn more than you would have with a single large investment in just one CD. 

Study the market

Understanding the market is critical if you want to maximize what your CDs earn. Generally speaking, when the Federal Reserve raises its federal funds rate, rates on savings products like CDs typically rise, too. When the Fed cuts rates, you can expect savings rates to drop as well.

“Research the general economic outlook for the future,” says Leah Evans, director of product management at Georgia’s Own Credit Union. “There are often projections regarding the increase or decrease of interest rates that can help you determine the ideal term of the CD.”

Once you have an idea of where the market is headed, you can choose the best CD products for your goals. 

“When interest rates are expected to rise, short-term CDs are a better option because they give you the flexibility to reinvest at progressively higher rates,” Shipe says.

When rates are projected to drop, you may want to choose a longer-term CD instead, as this will lock in the currently offered high rates — no matter where market rates head in the future. 

Shop around

Whatever you do, make sure you shop around for your CD, as rates can vary widely from one financial institution to the next. For example, the average rate on a 12-month CD account nationally is just 1.80%, according to the Federal Deposit Insurance Corp. At some banks and credit unions, though, you can get rates as high as 4% or more.

You should also look at the features each CD account comes with. Some, for example, may have early withdrawal penalties, which can eat into your earnings should you need to access the cash early. 

You can also look into what Evans calls “flex CDs,” which allow you to deposit additional funds after opening. These let you earn interest on any windfalls you might come into later down the line.

The bottom line

Opening a CD account is typically just the first step to earning big returns. If you want to maximize the returns on your money, finding the right CD strategy is a good move, and there are typically options to consider for every type of saver. But no matter what strategy you ultimately decide to use, it’s important to always shop around and compare your options, as the rates on CD accounts can vary widely from one bank or credit union to the next — and even a slightly higher rate could make a big difference in terms of your long-term returns.