If you belong to a credit union and want to see your money grow faster than it would in a conventional savings account, consider opening a share certificate. Share certificates are a credit union’s version of a Certificate of Deposit, in which a lump sum is deposited into an account and earns dividends over a set term, usually 3 to 60 months.
One downside of a share certificate is that you can’t access the money during the term if you want the guaranteed, fixed return, so it’s best suited for those who have extra funds they know they won’t need for several months or years. Yet there’s a solution for earning higher returns and maintaining flexible access to your money with share certificates: building a share certificate ladder. This strategy involves opening multiple share certificates at lower amounts over varying terms.
In this post, we’ll dig deeper into the concept of a share certificate ladder, walk you through how to build one and show you how it can maximize returns over the long run. Read on to learn more or contact Island Federal today.
What Is a Share Certificate Ladder?
Rather than depositing a large lump sum in a single share certificate, a share certificate ladder involves splitting it into smaller amounts and opening multiple share certificates with different maturity dates. By opening multiple certificates with staggered maturity dates, your funds will become available to you at regular intervals rather than waiting for a single certificate to mature.
Think of each share certificate as a rung on a ladder. The short-term share certificates make up the bottom rungs, while the longer-term certificates are the top rungs. The higher you go up the ladder, the more you’re likely to earn on your money as it matures. That’s the key benefit of building a share certificate ladder: You can capture high long-term rates while still maintaining access to at least a portion of your savings. This allows you to maximize your savings while avoiding early withdrawal penalties if you need cash.
Why Share Certificate Laddering Works for Long Island Savers
Share certificate laddering is an effective savings strategy for many Long Island residents, especially given the area’s high cost of living. Every dollar of interest you can earn matters, and residents should always have an eye out for ways to make their money work harder. Laddering is a low-risk, high-reward savings strategy that ensures you earn a guaranteed return on your money, with APYs well above those of standard savings accounts.
Furthermore, share certificates continue to increase in popularity thanks to their predictable returns and zero risk of principal loss as long as the certificate is held to maturity. What’s more, they’re federally insured by the NCUA up to $250,000 per member. In fact, due to these benefits, NCUA data shows that share certificate accounts have grown in popularity by about 10% in recent years.
As a non-profit, member-owned credit union, we’re dedicated to our members’ success at Island Federal and will work with you to set up a share certificate strategy that supports your short- and long-term savings goals. We offer competitive rates, flexible terms and all you’ll need to get started is a minimum deposit of $500 per certificate.
How to Build a Share Certificate Ladder in 5 Steps
Curious how to build a successful share certificate ladder? Follow these five steps to get started, then watch your money grow:
Step 1 – Decide How Much You Want to Deposit
The first step to any savings strategy is determining how much you want to deposit. At Island Federal, a minimum deposit of $500 is required to open a share certificate, making it one of the most accessible options for members interested in laddering certificates. We suggest determining your total deposit account balance and splitting it into multiple certificates with varying maturities, while keeping a separate savings account in a liquid fund for emergency expenses.
Step 2 – Choose Your Ladder Structure
The next step is selecting your certificate ladder structure. Divide your total deposit across multiple certificates with evenly spaced maturity dates to maximize returns and maintain frequent access to your money. A common ladder is opening five share certificates with maturity dates of 12 months, 24 months, 36 months, 48 months and 60 months; however, you can customize your “rungs” based on how frequently you want or think you’ll need access to your funds.
Step 3 – Open Your Certificates
Once you set your deposit amount and choose your laddering structure, it’s time to open your certificates. It’s best practice to open all of your share certificates at once, and this can be easily done by phone, online or at your nearest Island Federal branch location. An important thing to remember is that certificates don’t automatically renew into the same term, allowing you to strategically redeposit your money once it reaches maturity, if you choose. However, many members opt to auto-renew their longest-term certificates to help maintain the ladder.
Step 4 – Redeposit as Each Certificate Matures
To keep climbing the ladder and growing your money, any share certificate laddering strategy should involve rolling matured certificates into a new one, usually at a longer term. This helps ensure that all the rungs of your ladder are eventually earning the highest available rate, while still reaching maturity at different times. As you redeposit and keep climbing the ladder, you’ll start to see your savings really take off.
Step 5 – Adjust Your Strategy Over Time
A good share certificate laddering strategy isn’t without its adjustments over time. As each certificate reaches maturity, you have the option to redeposit or withdraw your funds. While redepositing is a means of continuing to climb the ladder and grow your savings, the flexibility of this savings strategy makes withdrawal more convenient with staggered maturity dates.
We encourage you to review our current rates on each maturity date to lock in what works best for your personal savings goals and formulate the savings strategy accordingly.
Share Certificate Ladder Example: $10,000 Over 5 Years
Here’s an example of how impactful a share certificate laddering strategy can be. Let’s say you have a lump sum of $10,000 to deposit in a five-rung ladder:
- Open five share certificates at $2,000 each with 12, 24, 36, 48 and 60-month terms. Make sure you open each certificate on the same day.
- The 12-month or one year certificate will reach maturity first. Roll those funds, plus your earned dividends, into a new 60-month certificate. Repeat the process each subsequent year when the other share certificates reach maturity.
- Your money will continue to grow as you climb the ladder and renew each certificate.
Here’s an example of what you can earn on each initial certificate under the current rates, assuming interest is compounded monthly:
| Term | Amount | APY | Dividend Rate | ~ Maturity |
| 12 months | $2,000 | 2.5% | 2.47% | $2,050 |
| 24 months | $2,000 | 2.25% | 2.23% | $2,089 |
| 36 months | $2,000 | 2.75% | 2.72% | $2,168 |
| 48 months | $2,000 | 2.5% | 2.48% | $2,208 |
| 60 months | $2,000 | 2.5% | 2.47% | $2,265 |
Short-Term vs. Long-Term Certificates: Finding the Right Mix
It’s important to settle on the right mix of short-term and long-term certificates while building your ladder.
Short-term certificates (think 3-12 months) offer more frequent access to your funds and the flexibility to capitalize on higher rates as they become available, but usually earn lower rates. Conversely, long-term certificates (think 36-60 months) often lock in better rates for greater growth potential, but they offer less flexibility to access your funds. Additionally, since long-term certificates are locked up for a longer period, you may miss out on an opportunity to secure a better rate if it becomes available.
Share certificate laddering combines the best of both short- and long-term options, offering the flexibility to access your funds more frequently while also securing long-term savings growth.
Common Ladder Variations: Mini, Barbell, and Bullet Strategies
While we’ve spent the bulk of this article discussing the most common laddering method, there are several alternatives to consider. Here’s a look at some of the more common alternative ladder structures:
- Mini ladder: This involves laddering with shorter intervals and is ideal for savers who want very frequent access to their funds and may be uncertain about their near-term cash needs. Unlike a conventional laddering strategy, which opens certificates from 12 to 60 months, a mini ladder might open certificates at 3, 6, 9 and 12-month terms.
- Barbell strategy: The barbell strategy allocates funds exclusively to short- and long-term certificates, skipping the middle terms. With this strategy, savers ensure they receive high rates while maintaining frequent access to other funds.
- Bullet strategy: The bullet strategy involves opening multiple certificates that mature around the same time. This strategy is ideal for those who are saving toward a specific goal, like a down payment on a home or another major purchase.
Share Certificate Laddering Tips to Maximize Your Returns
Want to maximize your returns? Follow these tips:
- Don’t deposit all of your available savings in share certificates. Instead, keep some money in a standard savings account that you can access when/if you need it. By doing so, you can avoid early withdrawal penalties if you ever need the money in your share certificate before the term ends.
- Know the early withdrawal penalties. At Island Federal, we charge penalties based on the certificate term, so it’s important to plan your ladder intervals around when you expect to need access to your funds.
- If your savings goals are focused on retirement, consider using IRA share certificates as part of your ladder strategy. At Island Federal we offer certificates that provide the same competitive rates as standard certificates, but with tax advantages.
Start Building Your Share Certificate Ladder with Island Federal
Are you ready to start building your share certificate ladder? Island Federal is here to help.
Take advantage of better rates compared to conventional savings accounts and flexible terms to build your share certificate ladder and watch your money grow. At Island Federal, we offer competitive rates, flexible terms and a minimum $500 deposit to open a certificate. Plus, you’ll receive the personalized financial advice and guidance you’ve come to expect to help you meet your financial goals.
View our current rates, then open a certificate online, by phone or in person at your local branch. You can also contact us at 631-851-1100 to speak with a savings specialist for further help with structuring your ladder.
Frequently Asked Questions
What is a share certificate ladder?
A share certificate ladder is a savings strategy that divides your deposits into multiple share certificates with staggered maturity dates. Rather than depositing a large sum in a single share certificate, this strategy involves opening several certificates with smaller amounts, each maturing at different intervals. At Island Federal, members can open share certificates for terms ranging from 3 to 60 months. This flexibility allows you to access your money more regularly rather than waiting for a single certificate to mature.
How much money do I need to start a share certificate ladder?
The money necessary to start a share certificate ladder depends on the minimum deposit required by your credit union and how many “rungs” you want as part of your ladder. At Island Federal, you can open a share certificate with as little as $500. So, for example, if you want to make the minimum deposit and want three rungs in your ladder, you’d need $1,500 to get started.
What happens when a certificate in my ladder matures?
When a share certificate matures, the term ends. This means you’ll receive access to your original principal amount plus any earned interest and dividends. You typically have three options: roll the earnings over into a new certificate, withdraw the funds penalty-free as cash or do nothing. If you elect the latter, we’ll roll your funds over into a new certificate with similar terms.
Is a share certificate ladder safe?
Yes, a share certificate ladder is very safe. Credit union share certificates are federally insured up to $250,000 per the NCUA, ensuring the security of the principal. Moreover, the ladder strategy reduces your risk of being stuck with a low interest rate or facing a cash shortage. Certificate dividend rates are fixed, ensuring a guaranteed return regardless of market volatility, provided the certificate matures.
What is the difference between a share certificate and a CD?
A share certificate is essentially the credit union equivalent of a Certificate of Deposit (CD). Both represent low-risk, high-reward savings options that allow you to deposit money at a fixed, guaranteed rate. Since credit unions are non-profit, member-owned financial institutions, share certificates often come with slightly higher yields than what banks offer on CDs.
Can I withdraw money from a share certificate early?
You can withdraw funds from a share certificate early, but you’ll likely incur an early withdrawal penalty. These penalties often mean that you’ll forfeit any dividends, which may dip into the original principal amount that you opened the share certificate with. This is where the share certificate ladder strategy can be helpful, as it ensures certificates mature at different times, allowing you to access your money more regularly.
Should I ladder share certificates when rates are falling?
Laddering certificates when rates are falling is a solid strategy, as it hedges risk by allowing you to lock in higher rates on longer-term deposits, while still maintaining periodic liquidity with shorter-term certificates. The only drawback is having to redeposit short-term certificates at lower rates, but the ladder strategy should prevent all certificates from being locked into lower rates.
How do I open a share certificate at Island Federal Credit Union?
It’s easy to open a share certificate at Island Federal. Open a certificate online today or stop in to your local branch to get started.