The Single Best Strategy for Making Money With CDs in 2024

If you have cash in savings that isn't reserved for emergencies or short-term goals, then that money could find a cozy home in one of today's top-paying certificates of deposit (CDs). CD rates are rarely as high as they are today, with the best 12-month CDs paying out above 5% APY. These rates might drop lower in 2024, making now a good time to lock in before it's too late.

But, like other investments, putting a little forethought into your CD strategy could help you maximize your returns and squeeze out more high interest for a longer period. And when it comes to getting the most out of your CD, one tried-and-true strategy pretty much takes the cake: CD laddering.

How to ladder your CDs

With a CD ladder, you divide your money among several CDs with staggered terms. For instance, if you had $30,000 to invest in CDs, you could divide your money like this:

• $5,000 in a 6-month CD
• $5,000 in a 12-month CD
• $5,000 in an 18-month CD
• $5,000 in a 2-year CD
• $5,000 in a 3-year CD
• $5,0000 in a 4-year CD

The goal here is to set up a chain of CDs that mature at regular intervals, helping you avoid the early withdrawal penalties that usually give CDs a bad rap. Instead of locking $30,000 in a 4-year or 5-year CD, you create these "rungs" with differing maturity dates. This gives you the option of accessing some of your cash early, should you need to.

It also prevents you from having to liquidate a single CD account if you ran into an emergency and needed to break into a CD early. CDs aren't like savings accounts -- you can't make partial withdrawals. If you're going to withdraw early, you have to terminate the CD and withdraw it all, even if you only needed a small portion of your savings. A CD ladder could free your money up for partial withdrawals, plus give you a choice of which early withdrawal penalty you choose to incur (short-term CDs typically have less harsh penalties).

Of course, the luxury of a CD ladder is that it can extend today's best CD rates while also minimizing their risks. You might even want to mix in some no-penalty or brokered CDs, both of which can give you a fallback plan if you need to free up some cash and want to avoid paying penalties.

Finally, you don't have to get your CDs at just one bank. You can shop around and open several CDs from multiple providers. This could help you lock into the best rates for specific terms while also increasing your FDIC insurance coverage.

Consider a brokerage account to save for retirement

Although CD ladders help you lock into today's great rates, they might not be the best place to put all your money. This is especially true if you're saving for a far-off goal, like retirement. In that case, you might be better off opening a brokerage account and investing in assets with potentially greater returns, like stocks. CDs may have guaranteed returns, but for a little more risk, you could potentially walk away with more money.

Of course, you could also combine stocks and CD ladders to get the best of both worlds. You'd get guaranteed returns on your CDs, plus a chance to grow your money at a faster pace. Just be sure to leave some cash in a high-yield savings account, too, as you don't want to be stuck choosing between selling your investments or breaking CD contracts if you end up needing cash in a pinch.