Personal finance

This ‘tried and true’ savings strategy captures yield amid changing interest rates

JGI/Jamie Grill

After years of relatively low yields, certificates of deposit, or CDs, have recently shelled out higher rates, following a series of interest rate hikes from the Federal Reserve.

While there’s uncertainty around the Fed’s future moves and the direction of interest rates, experts say CD ladders may capture higher yields while offering flexibility.

“It’s always a tried and true strategy,” said Ken Tumin, founder and editor of, a website that tracks the most competitive options for savings. “You don’t have to worry about trying to guess where interest rates are headed.”

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Typically, a CD ladder involves splitting equal amounts of cash among multiple CDs with different maturity dates. As the shorter terms expire, you can invest the proceeds into longer-maturity CDs.

“A CD ladder gives someone an opportunity to harvest a variety of yields over varying timelines,” said Bankrate senior economic analyst Mark Hamrick. “And if you’re searching for the highest yields, that can be quite rewarding.”

For example, investors may purchase five CDs, with maturities ranging from one to five years, freeing up 20% of their original investment every year.

A CD ladder gives someone an opportunity to harvest a variety of yields over varying timelines.
Mark Hamrick
Bankrate senior economic analyst

Alternatively, you may build a ladder with shorter-term CDs, such as three-month to one-year terms, which provides more flexibility.

While shorter-term ladders offer faster access to cash without a penalty, the trade-off may be missing the opportunity to lock in higher rates for longer-term CDs, Tumin said.

Of course, the decision ultimately hinges on your goals and how soon you’ll need access to the money, he said.

How ‘inverted yield curve’ affects short-term CDs

Typically, investors can expect higher yields from longer-maturity CDs than from shorter-term CDs.

But currently, the opposite is true because of the inverted yield curve, with long-term government bonds paying lower yields than shorter-term bonds, Tumin said.

As of April 25, top one-year certificates of deposit were paying an average of 5.17%, according to DepositAccounts. These rates are the highest 1% average. By contrast, most five-year CDs are paying well below 5% on average.

You still need a ‘diversified portfolio’

While CD rates have recently been higher, Hamrick pointed out that many still aren’t beating inflation.

Annual inflation rose by 5% in March, down from 6% in February, the U.S. Bureau of Labor Statistics reported in April.

“Over the long term, one needs to have a diversified portfolio, particularly when saving for retirement,” Hamrick said.

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