Laddering CDs

sushipup1November 9, 2011

Can someone walk me thru this? Using percentages, how do you ladder CDs for money not needed anytime soon, but want FDIC safety?

How much in what term? Any other considerations? How to get any yield at all out of long-term money that you want to be safe?

Thanks. I hope this sparks a discussion that will be useful to others.

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Laddering is something I did, but find it hard to do now because of crappy rates.

Hope this helps...

Here is a link that might be useful: Laddering CDs

    Bookmark   November 9, 2011 at 1:16PM
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Maybe crappy rates, but still safe. So in the article given, would you put 20% of the cash into each, 12-, 24-, 35-, 48-, and 60-month terms? Assuming you have no needs for the money in the foreseeable future?

    Bookmark   November 9, 2011 at 1:33PM
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Yes, that is the classic hedge. In 1 year, the 12 month will come due. All of the others are 1 years closer, so you would basically have a 1,2,3, and 4 year cd with 20% cash. Then, you take the 20% and buy a 5 year and you are back to your original mix.

At this point though, I'm not sure I would lock in anything for 5 years. You can just as easily do a 3 year ladder. Put 33% in 12 month, 33% in 24 month, and 33% in 36 month. It ladders the same way but turns over every 3 years.

Of course, that all assume you don't need this money and just want to park it. If you may need access to the money, then this is not the strategy for you.

    Bookmark   November 9, 2011 at 1:58PM
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All 12 of mine are now 1 year CDs.
I have one coming due each month.

"So in the article given, would you put 20% of the cash into each, 12-, 24-, 35-, 48-, and 60-month terms? "
Nope! I personally would not.
Locally the best rates are 10 months through 18 months. Anything longer is not worth it....

    Bookmark   November 9, 2011 at 7:14PM
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After checking out the interest rates, I can't see it. Sigh. Back to the research. (I mean .85% for 2 years?)

    Bookmark   November 10, 2011 at 12:16AM
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I've been wondering also. I currently can get 1.10% APY (1.09% Dividend Rate) on a 24 month ($500.00 min deposit) - interest compounded monthly. (Through a Credit Union)

The rates are pathetic. "MIGHT" be able to get better through an online only account(?). But, I'm not there.

I can get .70% APY (.70% Dividend Rate) on 12 month term, and 1.30% APY (1.29% Dividend Rate) on a 36 month.

I am willing to go out 3 yrs for now.

However, I MAY do a little something in a 5 yr (1.95%APR/1.93% Dividend) - because, in a jam I can take a secured loan out (IF NECESSARY) against that at 1% over the rate. (And I need extensive dental work in the very near future!)

    Bookmark   November 10, 2011 at 2:02AM
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If you need the money in the near future, do not buy a CD with it. Just park that cash in a money market or savings account.

    Bookmark   November 10, 2011 at 8:52AM
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For awhiile I did laddering, staggering, etc. Now I just put all CD's in the highest rate I can find regardless of years. The most recent I did were at 3% for 7 years. If the rate really jumps, I am willing to sacrifice 6 months interest (the penalty for early withdrawl). Search around for little known credit unions. I got into one about 6 months ago and got 3.5% for 7 years.

    Bookmark   November 12, 2011 at 1:11PM
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I`m not pleased with GICs, CDs, etc. ... as they earn interest, and interest here is taxed at the top rate ... but dividends on Canadian stocks, that used to be taxed at a lower rate, for the last 5 years have been taxed at an even lower rate.

That is part of the strategy that I`ve been using to reduce my Federal income tax to zero for the past couple of years - substantial charitable contributions and some political contributions are an important part of it, as well.

At 80+, having been a personal financial consultant for something like 25 years, I have about 80% of my assets in equities.

I have some bond and mortgage style of mutual funds, whose value stays quite steady. And haven`t bought a mutual fund in about 25 years.

In the past, if I were short of money when markets were low and I did not want to liquidate some of the mortgage fund, I could borrow some, using the fully-secured line of credit, planning to either pay it off from ongoing savings, or by liquidating some stocks later, after prices had recovered.

But, living rather frugally, by choice, and within my pensions, I have not needed to draw on such assets.

When I had blood clots in the lungs about a year and a half ago and, unusually, had to make substantial use of the health care system, the result was very little out-of-pocket expenses ... and I have no medical insurance.

But - I live in Canada - that helps!

Recent tests show that the clots have dissolved.

By the way ... sometimes I use a line of credit to buy more stocks, but that`s a different one, as the interest on the one used for consumer stuff isn`t deductible, but that on money used to invest is deductible and I don`t want to mix the two.

With the financial hassles in Europe, that are related to issues on this side of the water, I`m rather skittish about the financial future ...

... but not so much that I`ve liquidated a major portion of my asset.

Where would I put it, to earn anything to speak of (can`t use `question mark`).

And - when should I sell (question mark).

Yes - if there`s a major collapse, having cash on hand will be great, if, say the markets drop by half (or more).

But - if they don`t (question mark).

I`ll say this - it`s a lot more fun having a number of strings on one`s violin (or should that be `guitar`- that has more) than being up against it.

There are a lot of guys in a local plant that builds railway locomotives that have been told to take less than half of their former wage.

Some suggest that the employer plans to shut this plant and build them elsewhere.

Plus - if I liquidate stocks that I`ve held for 30 years or so ... there`ll be quite a lot of capital gain to pay tax on (that I haven`t had to, thus far): it`s nice to have increases in value that haven`t been liquidated, thus taxed, so far. Avoiding tax is best - deferring it almost as good.

It would be a good idea to liquidate some each year, and pay (low) tax now ..

... rather than have them all liquidated at my death ... and the personal retirement funds all added in, and taxed at a higher, maybe a substantial portion of them at the highest, rate.

But - don`t forget - the only earnings that your CDs will make is done now ... and taxed now.

I figure that, inflation being what it is, the U.S. carrying such huge debts (and other invisible liabilities), and printing money like crazy, that interest rates must go up ... and fairly soon.

ole joyful

    Bookmark   January 12, 2012 at 7:00PM
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