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Shah: Use ‘Ladder’ CDs for safety, income
Navin Shah
Navin Shah

Interest rates for certificates of deposit (CDs) are expected to continue rising gradually for the remainder of 2018.  That means short-term CDs are once again a reasonable savings option after several years of very low rates and returns. 

A technique that can prove especially useful is to “ladder” your CDs.  Here’s how “laddering” works:  instead of putting a lump sum into one CD, you divide the funds into a series of certificates of various maturities.    

Let’s assume you have $7,500 to place in a certificate of deposit.  Split the money into $2,500 increments and buy three CDs – one with a one-year maturity, another with an 18-month maturity, and a third with a two-year maturity.

As each CD matures, roll the money into a new one-year certificate – assuming you don’t need to spend the cash on something specific.    

Do this every year and you’ll maintain a balanced ladder of CDs that mature over a rolling 12-monht period.  If rates go up, you can start re-investing the early maturing CDs at the higher rate.  And if interest rates drop, your longer-term CDs help protect you from the lower rates.

“Laddering” has two strong benefits that make it a smart and safe way to save:

  • you’ll hedge interest rate risk – which is especially desirable given the current uncertainty about interest rates, and
  • you’ll keep cash flowing back into your hands – which is handy if you prefer to have money available every few months and if don’t want to lock up money at a given rate for an extended period

Your deposit accounts are insured up to $250,000 per bank by the Federal Deposit Insurance Corporation (FDIC), as part of economic recovery legislation passed by Congress during both the Bush and Obama Administrations.      

Discuss the “laddering” of CDs with your banker or your financial advisor to learn more details and to determine if the technique is right for you.  Also ask about “bump-up” or “step-up” CD’s that typically allow you to raise – or “bump up” – your rate once during the term of the CD. 

Navin Shah is Chairman of Royal Hotel Investments, which owns and operates two hotels in Covington and one in Conyers.  He is also Vice Chairman of Embassy National Bank, a community bank in Lawrenceville that he helped establish in 2007 and has become one of the leading SBA “Preferred Lenders” in the southeast.  He can be reached by e-mail at