A pile of money earned by creating a high yield certificate of deposit

How to Create a High Yield Certificate of Deposit

CDs are among the safest financial products available, but they typically come with such low interest rates that it makes it difficult to use them for long-term savings without losing the value of your money to inflation. Fortunately, there are ways to maximize the return of CDs, if you're willing to take the time.

Choose the Highest Interest Rate Available

The most obvious way to get the best return on a certificate of deposit investment is to look for the CD product offering the highest interest rate. Many people looking for the best interest rate, however, quickly discover that there are not a lot of CDs offering good rates. Since the rates on federal bonds are so low, many banks are simply not motivated to offer a high rate on their CD products. There are, however, a few banks that offer promotional rates to entice new customers.

To further complicate things, CDs with the best rates tend to have long “waiting” periods. In many cases, a person has to agree to park their money for five years or more. While this isn't a problem for some investors, other people need a more flexible investment.

Stack Your Investments

Fortunately, there is a way to create a CD that has a high interest rate but still allows access to your money at regular intervals. This process is called laddering or stacking. It can take a while to get it fully set-up, but once it's in place an investor can count on a secure, steady income coming in from CDs.

To create your own CD, start by finding the best rate you can on a CD (don't worry about the investment timeline). Then, divide the money you want to invest into as many groups as there are years in the CD term. For example, if the best interest rate you could find was on a five year CD, divide the money into five equal groups. Immediately buy the five year CD with one of these groups. Place the rest of the money into a one year CD with the best interest rate you can find.

After waiting a year, look around again for the best interest rates available. Once you find it, repeat the above procedure; divide your remaining money and invest a portion of it into the new CD. You can choose if you want to pocket the interest from the one-year CD or re-invest it. If you need steady access to your money, make sure to choose a CD that has a term equal to or less than the certificate of deposit you originally bought (five years or less according to our example). If you can afford to skip a year of returns, it's okay to invest in a certificate of deposit with a longer term. Place everything else back into one year CDs.

Repeat this procedure every year until the first of your “long-term” CDs matures. By this point, you'll have all of your money invested in CDs with good interest rates, and access to it at least once a year.

Last Updated: February 10, 2016