By Sabrina Karl

It’s a simple contract: Deposit money in a certificate of deposit and leave it untouched for a fixed period, and the bank will pay you a higher interest rate than you’d earn from a savings account. Break the contract by removing the funds too soon and you’ll pay an early withdrawal penalty.

For those feeling certain they won’t need their funds during the CD period, the risk is inconsequential. But if you’re not quite as confident, or you’re willing to accept a slight administrative burden in exchange for minimizing any earnings impact should you need to “break” your CD early, a splitting strategy can be smart.

Splitting CDs simply means opening a number of smaller CDs rather than a single certificate. Say you’ll be investing $20,000. Instead of opening one $20,000 certificate, you can opt to open two at $10,000 each, or four at $5,000 each, or even 10 at $2,000 each.

The advantage is simple. If you unexpectedly need to access some, but not all, of your funds, you can break just one or two CDs (or however many you need) instead of the whole lump sum. This limits your penalty to what you actually withdraw, leaving earnings on the rest unscathed.

Since most CDs are fee-free, there’s no added cost to opening multiple certificates. You will, however, incur more paperwork since each CD will receive its own statement. In these days of electronic statements, however, it’s a minor trade-off.

You’ll also want to check a bank’s minimum deposit requirements. Though many offer CDs with minimums of $1,000 or even $500, some require $10,000 or more. So check terms carefully as you shop around.

CDs are a great way to maximize earnings on your unneeded cash, and by splitting certificates, you can minimize your risk at the same time.