Is There a Limit on How Many CDs I Can Buy?

It's never a bad time to have money saved -- for example, an emergency fund can keep your personal finances afloat, saving you from going into debt on unplanned expenses. But there is one silver lining to the higher inflation we've been living with in the wake of COVID-19 and the resulting Federal Reserve rate hikes: If you have money in the bank, you have excellent opportunities to earn a decent rate of interest on it.

We've seen higher APYs on savings accounts and money market accounts, and both of these account types are certainly worth your attention. But if you have a chunk of money saved for the future that you don't want to invest (perhaps it'll be funding a house purchase or a wedding in the next year or so), you should consider a certificate of deposit (CD).

In exchange for locking up your money for a period (ranging from a few months to several years), you'll earn a steady and fixed rate of interest on it. Sounds great, right? And there's no rule that limits how many CDs you can open, either. You can spread your money out among multiple CDs and benefit in different ways. But not so fast -- having multiple CDs has some potential downsides, too. Let's take a look at why you might want multiple CDs and why you might not.

Advantages of multiple CDs

Since you're not limited in how many CDs you can have, you might want to try CD laddering. In a nutshell, this savings technique will have you putting money into multiple CDs of differing term lengths. For example, if you have $5,000 for CDs, you might opt to put:

• $1,000 into a 1-year CD
• $1,000 into a 2-year CD
• $1,000 into a 3-year CD
• $1,000 into a 4-year CD
• And $1,000 into a 5-year CD

The beauty of CD laddering is that every year, some of your money becomes available to withdraw or to reinvest in a new CD.

If you open multiple CDs, you can also take advantage of different rates and terms available from different banks. Maybe your regular bank offers decent rates on 1-year CDs, but an online-only bank has great rates on 2-year and 5-year CDs. If you want money available at different intervals, you can have the best of all worlds.

Finally, if you have a lot of money to put into CDs (perhaps not super likely for most people, but maybe you just sold your house at a generous profit), you might be concerned about exceeding FDIC insurance limits, which covers up to $250,000 per eligible account ($500,000 per joint account) if the bank fails. If you open CDs at different banks, you won't run the risk of hitting those limits and potentially losing some of your money in the event of a bank failure.

Disadvantages of multiple CDs

Having multiple CDs can come with a few downsides, though. For one, you'll have more accounts to keep track of. If all your CDs are opened with just one or two banks, this might not be a hardship for you. But if you want to take advantage of a variety of CD terms and interest rates, you might have a lot of passwords to maintain (and just because CDs are kind of "set it and forget it" doesn't mean you shouldn't check up on your money in one every once in a while).

Some CD accounts might require a high minimum deposit, which would mean you'd need quite a lot of money to open a bunch of them at once. So wanting to open multiple CDs might limit you to choosing accounts from only the banks that offer lower minimum deposits.

The other potential problem with multiple CD accounts is that you could open yourself up to paying penalties to withdraw money early if you tie up all your savings in CDs. Remember our emergency fund example? Don't put that into a CD -- you want that money to be available for you to access at a moment's notice, with no fees, because it's specifically for unplanned expenses that could pop up at any time.

CDs are a nice way to keep a chunk of money safe for a certain period, and as you can see, having more than one has the potential to do good for your finances.