3 Affordable Ways to Start Investing in CDs

You don't need a lot of money to take advantage of CDs (certificates of deposit) to grow your savings. All you need is the right CD -- and a bit of money you can do without for a few months. Here are a few tips for getting started.

1. Choose CDs with a low minimum deposit

Some CDs have minimum deposit limits that can put them out of reach if you're working with a low budget. However, plenty of other CDs have low -- or even no -- minimum deposit requirements. 

Indeed, you could open some of our top CD accounts with just $1 (though that's not really practical). These types of accounts would be good for someone who wants to dip their toe into CDs with a smaller investment.

If your regular bank requires too high of a deposit, check with a smaller local bank. Alternatively, check your local credit union for its rates on "share certificates." These operate similarly to a CD, but pay out dividends instead of interest income.

2. Look for promotional CDs with high rates

There is a lot of interest rate uncertainty right now, so you'll generally find the best APY (annual percentage yield) on short-term 6-month and 12-month CDs. The best rates, though, are often coming from limited-time promotional CDs with even higher rates.

Promotional CDs are essentially like regular CDs, but with higher rates -- and odd maturity terms. And I mean "odd" literally; you'll often see 7- or 11-month CDs instead of the usual 6-month and 12-month CDs. 

This can be an important consideration when the CD matures. Normally, when a CD matures, you either withdraw the money or it automatically rolls over into a new CD with the same maturity term. 

However, promotional CDs may rollover into a standard CD with a different maturity term (i.e., you may go from a 7-month promotional CD to a 6-month standard CD). Read the terms of a promotional CD carefully so you know what happens when the CD matures.

3. Ladder CDs to preserve access

One way you can capitalize on smaller investments is to ladder your CDs. This is when you have a variety of CDs that mature at regular intervals. When set up correctly, ladders can give you consistent access to a portion of your CD investments.

Generally, CD ladders are set up all at once by investing in CDs of varying lengths: 

• $250 into a 6-month CD
• $250 into a 12-month CD
• $250 into an 18-month CD
• $250 into a 24-month CD

However, you can also build a CD ladder by investing in CDs of the same maturity, but at different points in the year as you build up your savings:

• $250 into a 6-month CD on Jan. 1
• $250 into a 6-month CD on April 1
• $250 into a 6-month CD on July 1
• $250 into a 6-month CD on Oct. 1

The above setup would give you a CD maturing every three months. You could choose any interval you want, though, depending on how often you can afford to invest and/or how staggered you want your maturation dates.

Choose a savings account until you're ready

Everyone should have a good high-yield savings account for short-term savings, such as your emergency fund. This is also a good place to keep your savings if you aren't quite ready to invest in CDs. The best high-yield savings accounts have rates comparable to a good CD, so you won't lose out on too much growth, plus you get constant access to your funds. Just remember that the interest rate isn't locked in like it is on a CD.

Learning how to invest in CDs can be a useful financial skill, and it doesn't take a huge budget to begin. Take some of these tips and start saving!