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How to Use CD Laddering to Effectively Build Wealth

CD laddering is an excellent, low-risk savings option that allows you to have a steady stream of interest income while freeing up money as time passes.

June 24, 2022 | Madison Foster

Stock image of man stacking coins.

Recently we had a customer visit one of our branches with a clear strategy built for long-term financial success. She had figured out a process for significantly reducing the risk to her investments while maintaining a degree of liquidity with her funds, and it’s not a secret – it’s called CD laddering.

In a rising rate environment and bear market, like what we’re currently experiencing, it’s not a guarantee that your investments will make money. In fact, investing in the stock market always comes with the risk of losing money instead of gaining anything. That’s why this customer’s strategy makes so much sense – she’s guaranteed to see a return on her investment by utilizing certificates of deposit, or CDs for short. It’s really incredible, but also very easy to do. Here’s the basic concept of how it works.

CD laddering is a strategy that involves investing in multiple certificates at once with staggered maturity dates, taking advantage of the set term and fixed interest rate that the popular savings product is built upon. This allows you to reap the benefits and higher interest payouts of long-term CDs, while still keeping a portion of those funds accessible in the near future. While simple in practice, it can seem a more confusing than it really is.

Below you'll find an example to help visualize this strategy in practice. OMB is currently offering some fantastic CD specials in addition to its standard term rates. For the sake of simple math, let’s assume that on June 30 you invested $50,000 evenly in five different CDs at once using the following OMB rates.[1] Check out the CD calculator below for easy planning.

As you can see from the example, this investment would see continuous earnings over the span of six years and earn roughly $2,184.46 in interest alone, not to mention recouping the initial $10,000 deposit into each of the five CDs. In reality, you would also either continue to roll the short-term CDs over into another CD cycle, earning even more interest, or utilize the newly available funds if you needed them.

CD laddering is an excellent, low-risk savings option that allows you to have a steady stream of interest income while freeing up money as time passes. If it’s something you’re interested in exploring, feel free to visit any of our convenient branches to get started.

An Example of a Laddered CD Strategy

Term/Compounding Frequency

Opening Deposit on 6/30/22

APY*

Total Principal + Interest at Maturity

Matures On

3 months/maturity

$10,000

0.10%

$10,002.50

9/30/22

13 month special/semi-annually

$10,000

1.62%

$10,176.33

7/30/23

27 month special/semi-annually

$10,000

2.28%

$10,523.33

9/30/24

37 month special/semi-annually

$10,000

3.09%

$10,991.60

7/30/25

72 months/semi-annually

$10,000

0.80%

$10,490.70

6/30/28

Total

$50,000

$52,184.46

*APY = Annual Percentage Yield. Requirements include a minimum opening deposit of $1,000 with a maximum balance of $250,000 per person. Annual Percentage Yield APY accurate as of 06.23.2022. Rate subject to change without notice; see Truth-in-Savings for complete account disclosure. Penalty may be imposed for early withdrawal of funds. Fees could reduce earnings. The renewal rate for the 13-month term will be based on the 12-month board rate in effect at time of maturity; the 27-month term will be based on the 24-month board rate in effect at time of maturity; and the renewal rate for the 37-month term will be based on the 36-month board rate in effect at time of maturity. This offer is good for a limited time only and may be withdrawn any time at the Bank’s discretion. Consumer only.

OMB and its affiliates do not provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decision. This material is not intended as a recommendation, offer or solicitation for the purchase or sale of any security or investment strategy.

[1] CD rates as of 6/24/22, subject to change at any time.

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