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Certificates of deposit are typically seen as a "set it and forget it" type of savings vehicle. However, planning a purposeful CD strategy can allow savvy savers to access funds at different times based on when they want to achieve different financial goals.

Typically, CD strategies involves opening multiple CDs to take advantage of different terms and rates. These strategies offer flexibility and liquidity, allowing you to align CD investments with specific financial goals.

Whether your goal is saving for retirement, tax payments, a dream vacation or a downpayment on a house, consider these three smart CD strategies to help plan your CD funding.

CD Bullet 

If you have a target date that you’d like access to your funds, the CD Bullet can be a compelling strategy. Just like an actual bullet, the CD Bullet strategy targets a date in which the saver opens several CDs over several years that will mature around the same time.   

This is a great way to fund long-term savings goals such as buying a house, funding college tuition, taking a dream vacation or saving for retirement.

Example of a CD Bullet:   

• Year 1: Invest $5,000 in a 5-year CD  
• Year 2: Invest $5,000 in a 4-year CD  
• Year 3: Invest $5,000 in a 3-year CD  
• Year 4: Invest $5,000 in a 2-year CD  
• Year 5: Invest $5,000 in a 1-year CD  
• End of Year 5: All five CDs have matured, and your principal of $25,000 is available plus interest.   

CD Ladder  

“Laddering” is the process of opening several CDs, each with different terms, so you have a set schedule of funds becoming available providing needed liquidity. This could be used to meet an expected cash flow, such as tax payments, quarterly or annual tuition payments or funding a home renovation. It can also be a way to keep funds invested until you need them.  

For example, you open four CDs, each for $50,000 but with respective terms of 3-, 6-, 9-, and 12-months. Over the coming year, $50,000 will be available every 3 months. Each time a CD has reached its maturity, you’re able to access some or all the cash. Or you can set it up to let each CD roll over into a new 12-month CD, retaining the same 3-month availability in the coming year, while still earning the higher rates typically offered for CDs. 

Breakdown of a CD Ladder:   

• Start: Open four CDs for $50,000 each with terms of 3-, 6-, 9-, and 12 months  
• End of 3 months: 3-month CD matures, principal of $50,000 plus interest is available.  
• End of 6 months: 6-month CD matures, principal of $50,000 plus interest is available.  
• End of 9 months: 9-month CD matures, principal of $50,000 plus interest is available.  
• End of 12 months: 12-month CD matures, principal of $50,000 plus interest is available.   

CD Barbell  

Exercising a CD Barbell gives you the savings results you’re looking for by splitting your investments in two, short- (12 months or less) and long- (five years or more) term CDs.

This is beneficial when you have two savings goals on different timelines. A two-ended Barbell strategy allows you to take advantage of a long-term CD’s higher, fixed interest rate while a short-term CD allows you to reach short-term savings goals, provides early access to funds, or gives you the ability to reinvest in CDs with possible higher rates.    

Breakdown of a CD Barbell:   

• Start: Split $10,000 between a 12-month CD (short-term) and a 5 year CD (long-term).  
• End of 12 months: Short-term principal of $5,000 is available plus 1 year of interest.  
• End of 5 years: Long-term principal of $5,000 is available plus 5 years of interest.  

Final Takeaway

Understanding how you can further utilize the low-risk and high-return of CDs can help you reach your savings goals in time frames that align with your financial needs. Whichever strategy you choose to achieve your savings goals, get the most out of your CD by patiently waiting until it reaches maturity, maximizing your earnings.