5 smart moves to make the most from your CDs

Hands holding fanned-out money

Picking the right CDs isn't as easy as it sounds.

If you buy too many certificates with short maturities and microscopic interest rates, your return on investment will suffer. On the other hand, you don't want to lock up all your money in longer terms and miss out on great deals if interest rates move higher.

And you have to consider the bank itself and the terms and conditions it sets on your deposit.

Savers can take some comfort in knowing that interest rates might begin to creep up by the end of the year. Your strategy should reflect the new interest rate forecast.

These 5 smart moves can help you find the right certificates of deposit from the top-paying banks or credit unions to boost your income.

Our extensive database of CD rates allows you to compare the best deals from scores of banks.

Smart move 1. Create a ladder.

When you spread out your maturities with a laddered approach, you get the best of both worlds. You earn more money with the higher rates that your long-term certificates pay. And by keeping some of your maturities shorter, you can take advantage of rate specials as they pop up.

A balanced ladder can be effective especially when interest rates are rising. The key is to pick the right mix.

One candidate for your ladder should be the 5-year CD from Ally Bank that pays 2.40% APY with no minimum deposit. That easily beats rates on shorter terms and money market accounts. It also offers you protection in case yields don't increase for a while.

If you're not comfortable going that long, Ally Bank also offers a 3-year CD at 1.8% APY with the same no minimum deposit rule. That rate is still high enough to improve your current income.

If rates start moving higher sooner than expected, you still are in good shape. You just keep renewing your maturing certificates at higher and higher rates.

Smart move 2. Check early-withdrawal penalties carefully.
Breaking a CD early at a bank almost always involves paying a penalty to the bank. You can't get around that.

You can, however, pick banks with more lenient early-withdrawal penalties. That way you can take advantage of higher yields when they come.

For example, if the 5-year rate at Ally Bank were to move up to 4%, you could pay the penalty, reinvest and still come out ahead. That's because the Ally certificate has a relatively generous penalty of 60 days of interest. You can easily make this up by earning a higher rate for the duration of the new CD you purchase.

If you pick a bank with a stiffer penalty, say six months to a year of interest payments, your flexibility to break a contract is greatly reduced. Don't get stuck with a killer penalty.

Smart move 3. Avoid troubled banks.

The best rates are often available from banks that are financially the weakest.

This works out great as long as the bank survives past your maturity date, but not as well if the FDIC swoops in to close the bank early.

Although your principal is insured up to $250,000 per depositor, having money at a bank that has been closed can lead to problems. You could lose your high rate or have the terms changed, including the early-withdrawal penalty.

If all things are equal between two banks, pick the one that has a higher financial rating. It may save you money.

Find out if your bank is safe using the Safe & Sound rating system from Bankrate.com.

Smart move 4. Compare the yields to the money market and savings rates at the same bank.

It makes sense to keep some of your maturities short. But before you lock in your money with a short-term certificate, check the rates offered on the bank's other deposit accounts.

Take, as an example, the rates at OneWest Bank. This California bank has a 90-day certificate that pays 0.70%, but its savings account rate is actually higher at 1.10% APY.

But remember, a savings or money market rate can drop anytime after you open your account. But since the Federal Reserve doesn't have any room to drop interest rates further, chances are good your rate will survive or even increase.

Smart move 5. Take full advantage of local credit unions.

Credit unions often reward local consumers with higher rates than banks.
The Police and Fire Federal Credit Union, based in Philadelphia, is a perfect example.

It offers members a 5-year certificate that pays 3.00% APY with a minimum deposit of $500. That's more than you can earn with the top-paying, nationally available deal.

Credit union membership used to be limited to employees of a certain company or trade, but those rules have been changed so that more savers can join. With the broader rules in place, you may qualify to become a member at more credit unions than you think.