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Bottom Line Up Front

  • Share certificates (also known as certificates of deposit or CDs when you purchase them from your bank), generally have a higher interest rate. To invest, you’re required to keep your money in the account for a set period of time or term.
  • Investing money in longer-term certificates and shorter-term certificates is called laddering. It’s a great strategy to take advantage of different annual percentage yields (APY) to help you reach your financial goals.

Time to Read

3 minutes

May 17, 2022

As a small snowball rolls down a hill, it gains speed and becomes a giant snow boulder. This is known as the “snowball effect.” But how could the snowball effect positively impact your money?

It starts with certificates. You can find them at your bank (Certificates of Deposit or CDs) and credit union (Share Certificates). And, with the right strategy, you can take advantage of certificate rates to improve your personal finances by rolling a small amount of savings into something more.

What are certificates, and how do they work?

Certificates and checking and savings accounts have 2 key differences. A certificate generally has a higher interest rate, meaning you’ll earn more from your money over time. A certificate also requires you to agree to a set period of time your money must remain in the account. This is the term or length of time. When the term ends, you can withdraw the funds, but if you do so prior to maturity, you could pay an early withdrawal penalty. 

Whatever your goals, certificates can help you achieve them. A longer term means your money will be untouchable for a longer time with a higher rate of return. You could use this option if you know you’d like to purchase a home in the next 10 years. A shorter term length—a 3-year to 5-year certificate—is a good option for meeting short-term goals, such as a down payment on a car or vacation. Navy Federal Credit Union offers certificates with terms as short as 3 months.

Certificate laddering

The snowball effect comes into play with certificate laddering, a strategy using multiple certificates. This approach can provide steady and stable savings over time.

For example, instead of putting $5,000 in a single certificate, you can put $1,000 in 5 certificates with different term lengths: 1-year, 2-year, 3-year certificate, etc.

Once the youngest certificate matures, you then roll that sum into the highest “rung” of the ladder, or longest-term certificate. This allows you to get higher returns while having liquidity, or frequent access to your money.

Let momentum do the work

Certificates work so well because your savings are locked into a set term length, which means interest will accrue and grow your savings. You can see for yourself with this calculator that shows the benefits of using certificates. Seek advice from a trusted financial institution to identify your goals and match a certificate to help meet them. The sooner your savings snowball starts rolling, the sooner you can reap the benefits.

Next Steps Next Steps

  1. Check out our ultimate certificate laddering strategy and apply it to your own certificate strategy. 

  2. Navy Federal Credit Union offers a useful Certificate Laddering calculator that will help you examine the benefits of investing in a series of certificates with different maturities. 
  3. Open a certificate. Navy Federal has certificates with terms from 3 months to 7 years.  


This content is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.