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How Many Certificates of Deposit (CDs) Can You Have?
A regular savings account in a bank or credit union is a great interest-earning way to have money on hand as an emergency fund or to save for short-term financial goals — for example, back-to-school shopping or a new home computer.
If, however, you're fortunate enough to have funds that you won't need right away, consider a certificate of deposit (CD). CDs often provide a higher return because you agree to let the bank hold your money for a defined period of time.
Now, let's say you sell your house or inherit money from a relative, and you have some extra money to put away for a rainy day. Could you also put those funds into CDs? Yes! In fact, there are no limits on the number of CDs you can own at any one time.
This article explores when it's a good idea to hold multiple CDs, along with things to consider, possible pitfalls and CD options at TD Bank.
Benefits of having multiple CDs
There are several good reasons for owning more than one CD.
More liquidity
CD terms range from one month to five years, perhaps even more. Having different CDs reach maturity at different time spans—say one month, six months, 12 months and 18 months—gives you liquidity by being able to access at least some of your savings at any one time.
You might even explore a no-penalty CD as one of your options. This type of CD allows you to withdraw funds without paying an early withdrawal penalty, under the right circumstances.
Predictable income
Certificates of deposit pay a guaranteed annual percentage yield (APY)—the interest the money will have earned by the end of the term. Some APYs, depending on the financial institution, are at nearly 5%, much higher than you would earn in a regular savings account.
But whatever the rate, you know exactly how much more money you will have saved at the end of the term.
Locked-in interest
A rise in interest rates can be a pain point for people shopping mortgage rates and those with debt management issues but can be a net positive for CD holders.
When a bank is able to offer higher interest rates on CDs, you can jump in to take advantage. Even if interest rates fall, you will still earn a reasonable return.
CD laddering
Building a CD ladder is a wealth management strategy by which you intentionally invest in certificates of deposit at different terms, possibly with different CD rates, to maximize your returns and financial flexibility.
What is CD laddering?
CD laddering spreads your money over multiple CDs with varying terms, providing more control over when you have access to your money. It allows you to take advantage of higher APYs and place your money where you find good value.
Accounts are backed by the full faith and credit of the U.S. government for up to $250,000 per institution and per depositor per account category.
How does CD laddering work?
CD ladders work by staggering your returns as the CDs mature one by one. Think of each CD as a rung on a ladder, each rung representing a step in your asset allocation. Let's say you decide you can put $5,000 into CDs for several years. Instead of buying one 5-year CD, you could buy:
- A six-month CD for $1,000
- A 1-year CD for $1,000
- A 2-year CD for $1,000
- A 3-year CD for $1,000
- A 4-year CD for $1,000
As each CD matures, you can roll it all into another CD, keep the earnings and buy another CD with the rest, make a different kind of investment, or use the money for something else.
One risk with a CD ladder is that you might miss out on a higher interest rate in the middle of a term.
Benefits of CD laddering
A CD ladder lets you continue to save over the long term, allowing you to earn compound interest and roll your money into new CDs as they mature. You maintain a certain amount of liquidity because you are never too far away from a CD maturing. At the same time, this financial planning tool offers some protection against sharp drops in interest rates.
The liquidity you gain by building a CD ladder gives you a certain amount of flexibility when new investment opportunities (or better CD offers) come along.
Considerations for having multiple CDs
Assuming you have enough money to adequately fund multiple CDs, also consider these factors:
- Keeping track of maturity dates. Someone—you, your personal banker, or the professional who helps you with accounting, tax planning or business management—has to keep an eye on the maturity dates, as well as looking for better CD offers
- Deciding what to do with the money. When any CD is about to mature, you must decide whether to roll over—or reinvest—your money in a CD or withdraw the money to use in some other way. If you don't let the bank know what you want to do, the funds may be automatically rolled into another CD at the prevailing interest rate
- Understanding early withdrawal penalties. Penalties can eat away at not only your earnings, but also your principal. Before purchasing a CD, ask the bank what you'll lose if you have to terminate the CD early
How to set up multiple CD accounts
Opening a certificate of deposit (CD) with a bank is usually quick and easy, and it can be done online or in person. Just be sure to do some comparison shopping before you commit your money to one or more CD. Almost all banks are FDIC insured but check to be certain.
First, decide how much you want to deposit in each CD, making sure you have enough funds to meet the minimum deposit requirements. Choose term lengths that will work for your financial goals. If, for example, there's a baby due in nine months, don't choose a 12-month CD.
Then shop the rates. Aim for a mix of maturity dates.
Sit back and let your CDs mature, knowing you have a guaranteed return at the end of the term.
CDs offered at TD Bank
Flexible terms with predictable return
Increasing interest rates plus one penalty free withdrawal1
Flexibility, guaranteed rates and one free withdrawal