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There are investors and there are savers. If you fall into the category of the former, you have a greater tolerance for risk. If you are a saver, your main financial concern is to protect your principal, which leads many to certificates of deposit. But how to find the best CD terms?

Let’s start at the beginning. The goal of a CD is to ensure the principal can be spared no matter what happens in the market. These certificates represent the money that is held by the bank for anywhere from 18 months to five years or more. The bank pays interest on that deposit — your earnings. The money is typically more than a depositor can earn in savings or money market accounts.

Related >> Today’s saving rates

People like CDs because they can select ones that align with their time frame of not having access to the money. Each CD up to $250,000 is insured by the Federal Deposit Insurance Corp. (FDIC), which protects your money in the event of insolvency. Savers like that assurance.

Finding the Best CD Terms

One nice aspect of purchasing a CD is that you can shop around to find the best terms and rates, regardless of whether or not you have an account with that specific bank. A downside is that current interest rates are very low and most likely won’t rise significantly anytime soon. The last time double-digit interest rates were paid was in 1984. If you are looking for a return to those levels, it could be a long, long wait.

But you can take steps to maximize the interest you receive on your CDs and not tie up all of your money for the long term. I’ll let you in on the secret sauce in just a bit.

First let’s look at recent average bank rates as of Oct. 31, 2016.1 The rate cap is the maximum rate the bank has agreed to pay customers over the term of the deposit in the event there is a major shift upward of interest rates. For the most recent rates per bank, see our main CD rates page.

Non-Jumbo Deposits (< $100,000)

Deposit Products National Rate 1 Rate Cap 2
Savings 0.06 0.81
Interest Checking 0.04 0.79
Money Market 0.08 0.83
1 month CD 0.06 0.81
3 month CD 0.08 0.83
6 month CD 0.13 0.88
12 month CD 0.22 0.97
24 month CD 0.36 1.11
36 month CD 0.49 1.24
48 month CD 0.60 1.35
60 month CD 0.77 1.52

Jumbo Deposits (≥ $100,000)

Deposit Products National Rate 1 Rate Cap 2
Savings 0.06 0.81
Interest Checking 0.04 0.79
Money Market 0.11 0.86
1 month CD 0.07 0.82
3 month CD 0.09 0.84
6 month CD 0.14 0.89
12 month CD 0.23 0.98
24 month CD 0.39 1.14
36 month CD 0.52 1.27
48 month CD 0.64 1.39
60 month CD 0.80 1.55

It’s evident that the longer the term, the more interest you earn, albeit still less than 1 percent annually. Now let’s look at specific scenarios so you can see what might work best in your situation.

First, let’s assume you have $10,000 to put into a deposit account and you don’t want to tie that money up more than five years. Let’s also assume you want some flexibility to withdraw money in the event you need it before the five-year term.

  • Investing the full amount in a money market account with a .08% yield you can earn about $41 in interest over the five years.
  • Investing the $10,000 in one-year CDs will earn about $117 over that period.

Laddering Your CDs

By laddering your CDs, you earn more interest over the five years AND you don’t lock up all your money for the full term. Here’s how laddering works:

  • Purchase multiple CDs at different rates. Using the $10,000 example, you can invest $2,000 in five different CDs — 12-month, 24-month, 36-month, 48-month and 60-month.
  • As each CD term is up, you purchase another 60-month CD, at the current rate. Using the figures in the accompanying chart, your interest breakdown would be as follows:
  • CD #1: 12-month (.22%) and converted to 60-month (.77%) at term would earn nearly $67 in interest over the first five years.
  • CD #2: 24-month (.36%) and converted to 60-month (.77%) at term would earn a little over $61 in interest over the first five years.
  • CD #3: 36-month (.49%) and converted to 60-month (.77%) at term would earn nearly $61 in interest over the first five years.
  • CD #4: 48-month (.60%) and converted to 60-month (.77%) at term would earn a little more than $64 over the first five years.
  • CD #5: 60-month (.77%) would earn about $78 over five years.

Related >> How to Ladder CDs

Using this scenario, the initial $10,000 will earn $331 in five years, which may not set your hair on fire, but it is substantially more than putting that money in a money market, savings account or 12-month CD.

That’s the secret sauce. Ladder your CDs for as long or as short as you feel comfortable and you can maximize the growth on your savings.

GRS is committed to helping our readers save and achieve their financial goals. Savings interest rates may be low, but that is all the more reason to shop for the best rate. Find the highest savings interest rates and CD rates from Synchrony Bank, Ally Bank, and more.