Understanding the Benefits of CD Laddering for Community Associations

A CD ladder is an investment strategy that gives you the strength of long-term CDs while freeing up portions of your money at short-term intervals. CD laddering involves investing money in multiple CDs instead of investing in a single CD and waiting for it to mature. It's an ideal cash management concept for community associations because it provides safe earning power and regular access to funds.

How do CD ladders work for community associations?

A CD ladder sets up multiple CDs so they mature at staggered intervals. While each CD can have the same or a different amount, setting a different maturity date for each allows your community association investments to grow. You can then enjoy the interest rate offered by the longest-term CD.

Typically, you'll benefit from a higher annual percentage yield, or APY, the longer out the maturity date is set. Let's look at an example of how this can benefit your community association.

• The XYZ Homeowners Association has $200,000 in reserves and wants to invest in laddered CDs.
• The bank breaks the investment into smaller increments, placing them in a series of CDs with staggered maturity dates: $50,000 each in CD with 3-month, 6-month, 9-month and 12-month maturities.
• Using this strategy, XYZ HOA will have $50,000 available every 3 months. If the money isn't needed for a reserve project at that time, it can simply be reinvested.

4 key benefits to CD laddering

Convenient, flexible and low risk—your community association can look to CD laddering as part of your overarching savings strategy.

1 Fixed rate of return

You know what you'll earn, so it's easier to plan.

2 Liquidity

Allocating shorter CD maturity periods means your funds are ready when you need them.

3 Competitive interest rates

Because your rates are tied to the market, they're always among the best available.

4 Safety

Depending on the product you choose and the amount you invest, you also get peace of mind knowing your investment is FDIC-insured.

What about FDIC limits?

There are investment choices for associations that include protection for deposits over the $250,000 FDIC limits. The strategy is the same as in a regular CD ladder, but your investment is protected.

How can I get started with CD laddering?

The first step is to sit down with a bank specializing in community associations to discuss your specific needs. Be prepared to discuss your future projects and when they'll begin.

They can help you ladder CDs to align with your association's major projects, so they'll mature when funds are needed.

Look for a banker who understands the unique needs of community associations, listens to clients and uses expertise to help you protect and grow your funds—so you can focus on growing your community.