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Laddering Certificates to Maximize Dividends

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  • Summary
  • Article

Laddering Certificates to Maximize Dividends


  1. How laddering certificates can help you whether rates go up or down
  2. Why it is a sound savings strategy
  3. How to set up a certificate ladder

Laddering Certificates to Maximize Dividends

How certificate account laddering can give you better returns whether dividend rates go up or down

Has your pulse rate been following the ups and downs of the stock market? If so, you may be more comfortable keeping some of your money in certificate accounts (also known as term share accounts at credit unions and certificates of deposit at banks). The dividends on certificate accounts, particularly for longer terms, provide the highest federally insured return available. There is no risk of loss of principal as you have in uninsured investments. They are worth considering as part of your overall investment strategy.

Guaranteed Safety

Certificate accounts are federally insured up to $250,000, and your principal isn't at risk during the term of a certificate account. This is especially important if you need your money in the short term, for a major purchase such as college tuition, home improvements or an upcoming vacation. Certificate accounts let you plan your financial future with confidence because you know your return up front.

Certificate account laddering: a sound saving strategy

Many financial experts suggest staggering or laddering the purchase of short-term certificate accounts. You can build a system of guaranteed steady returns, as well as incorporate a certain amount of liquidity (access to cash) into the investment process.

Basically, laddering refers to buying certificate accounts with varying dates of maturity. For example, let's say you have $10,000 to invest. To establish a one-year ladder, you would put $2,500 each into: a three-month certificate account, a six-month certificate account, a nine-month certificate account and a one-year certificate account. That means you have a certificate account maturing every three months. Upon maturity, you would simply roll over each certificate account into a one-year certificate account to continue the pattern.

This system allows you to achieve a more consistent return on your savings. If rates move up, you'll be able to earn the higher rate on part of your money. And, if rates decline, only a portion of your money will be affected.

Remember, you always have the option of choosing a longer term certificate account to lock in higher returns. Here's an example of what your return would be using a laddering strategy versus a putting the full amount in a three-month certificates.

Laddering versus Short-Term Investing

In this example, all funds are deposited for two years and renew at the current terms. Annual Percentage Yields (APY) shown are for example purposes only. For current rates, visit our Certificate Rates page.

Flat Rate Scenario

Dividend rates remain the same for two years.

Term Annual Percentage Yield Laddering
$2,500 each term
Short Term
$10,000 in 3-month term
3-months 3.50% Two Year's Earnings Two Year's Earnings
6-months 3.75% $785.10 $712.25
12-months 4.00% Laddering Advantage  
24-months 4.25% $72.85  


Falling Rate Scenario

Dividend rates fall 0.50% for the second year.

Term Annual Percentage Yield Laddering
$2,500 each term
Short Term
$10,000 in 3-month term
3-months 3.00% Two Year's Earnings Two Year's Earnings
6-months 3.25% $751.20 $660.50
12-months 3.50% Laddering Advantage  
24-months 4.25% $90.70  


Rising Rate Scenario

Dividend rates go up 0.50% in the second year.

Term Annual Percentage Yield Laddering
$2,500 each term
Short Term
$10,000 in 3-month term
3-months 4.00% Two Year's Earnings Two Year's Earnings
6-months 4.25% $829.00 $764.00
12-months 4.50% Laddering Advantage  
24-months 4.25% $65.00  

The 24-month certificate rate remains the same for the full two years whether market rates rise or fall. The certificates with the three other terms renewed at the new rate for the second year. For the 3-month, the rate change took effect for the 5th term. It took effect for the 3rd term for the 6-month, and the 2nd term for the 12-month.

You can see how laddering comes out ahead of a short-term certificate strategy in all three scenarios. The continual cycle of staggered maturity dates allows you to earn respectable returns no matter what market rates do. If you'd like to learn more about DCU Certificate Accounts, visit our Certificates page.