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Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

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Do CD Ladders Still Make Sense?

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The main idea behind a CD ladder is that you are not locked into just one CD. The ladder should be composed of several CDs each maturing once a year or in some regular interval. This provides two benefits. First, it gives you regular access to your CD money without having to worry about early withdrawal penalties. Second, it allows you to take advantage of higher rates of long-term CDs, and it gives you the opportunity to reinvest in higher rates as the CDs mature.

Poll: Are you still using a CD ladder?

With today's interest rates being so low, do CD ladders still make sense? I thought this would make for a good poll. Are you still using a CD ladder? If you are still laddering CDs, have you made changes? For example, some may have decided to renew CDs on their ladders into longer-term CDs to take advantage of higher rates. Others may have decided to renew CDs into shorter-term CDs to prevent being stuck into a low-rate CD if interest rates rise.

My Take on CD Ladders

I've seen some financial advisors who have claimed that the CD ladder strategy is all but dead. It might seem unwise to renew CDs that mature today into new long-term CDs which have such low rates. However, many had those same concerns two years ago. I'm sure many readers who opened long-term CDs two years ago are glad about their choices. The problem is no one knows about how interest rates will change. The CD ladder provides a strategy that doesn't require you to guess about future rates.

CDs don't have to make up one's entire portfolio. For the fixed-income part of your portfolio that you want to keep safe, CDs and CD ladders can still make sense. For example, Allan Roth who writes for CBS News has written that he has "roughly" 70% of his "fixed-income portfolio in high-paying CDs that have easy early withdrawal penalties."

CD Ladder Overview, Strategies and Tips

If you're not familiar with a CD ladder, we have a CD ladder overview with an infographic. There are ways you can tweak a CD ladder. I described some of these ways in my post on Alternatives to CD Ladders. There are issues that can mess up your CD ladder and reduce your CD earnings. I reviewed some of these in my posts Issues to Consider for Your CD Ladder and 10 Gotchas to Avoid for Bank CD Investors.

  Tags: CD rates

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Comments
17 comments.
Comment #1 by mak1118 posted on
mak1118
I am using a 6 year CD ladder it was a 7 year ladder. I have a lot of 5% and 6% CDs maturing in the next several months.... I am leaning to going shorter term on those but it really all depends what rates are available when my CDs mature.

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Comment #2 by Robert (anonymous) posted on
Robert
I don't "ladder" CD's because I use Ally no-penalty CD's for a lot of things (why ladder if there's no penalty?).  I also rely on Ally because their long-term CD's (5 years) have such a light (2-month) early withdrawal penalty.  But I wonder if I should continue to rely on Ally: http://money.cnn.com/2012/05/14/news/companies/ally-bankruptcy/index.htm?hpt=hp_t3  ??? 

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Comment #3 by Anonymous posted on
Anonymous
If we had known what was going to happen to interest rates from 2008 on, I suspect that a lot of folks would have thrown out their CD ladder schemes  and invested in long-term CDs, even if they had to pay penalties for early withdrawl on CDs maturing over the past 5 years.  Who could have predicted that the Fed would steal trillions in savings from savers to slow the effects of recession.  And what did we get from the Fed's grand scheme.....  lots of lost income, a country more in debt now than when the interest rates started to drop, and a very bleak future economically.  So Ken,  what ever happened to that savers petition that was talked-up so much a few months ago???

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Comment #4 by Paoli2 posted on
Paoli2
#3  The Savers Petition is on:  http://signon.org/sign/the-feds-zero-percent

We would be so happy to have you sign it.  If you know of anyone else who might sight it, please give them the url.  Thanks so much for your help!

2
Comment #5 by Anonymous posted on
Anonymous
Been using a CD Ladder for about 30 years never cashing in early and almost always accruing the monthly interest. Always buying or renewing for the long term (mostly 7 years but some were for 10 years). Only a three instutiions Capital one, NFCU and PFCU. Best rates still have a couple of years to go at 6.25% with one at 5% at PFCU running for another 8.5 years. Older now so may just put the redemption money in MMA and live out the rest of our lives unsing principal if necessary.

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Comment #6 by Anonymous posted on
Anonymous
Hand a CD Ladder out 5 years with each CD coming due every 2 months.... had around 50k in each CD.....

with the rates of today, i have moved about 2 years money into Fixed income like Prefered stocks and High dividend ETF's....... as the rest of the CD matures, i will go back into a ladder with the lower rates...

I am getting around 7% in my fixed income, so the other 1/2 of the money at 2% will not hurt as bad...

 

2
Comment #7 by Kaight posted on
Kaight
Sure wish I could tell you my interest rate crystal ball was clearer, and way better, than yours.  Dang.  It's not.

I've been going barbell for several years, and right now my short stuff is really getting creamed.  The long stuff looks fine but there is nothing about which I can boast.  So much of the future will not be determined until November.  And even after that, nothing is going to happen instantly.  It took Ronald Reagan three years to clean up after Carter.  Even if Romney gets in, which is far from a sure thing, he's not gonna be able just to snap his fingers and make the catastrophe disappear.

I don't really regret the barbell over laddering.  I don't know what I would have done differently.  When the entire building is collapsing it's tough to be a winner no matter which floor you're on!   

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Comment #8 by Anonymous posted on
Anonymous
I wonder, will the election year (of course, in the US in 2012) have any impact on the upcoming cd rates? would it be worth to wait a little bit to see if cd rates go up a bit? I like the laddering idea, since it's simple, and it takes into consideration the uncertainty of the future rates, while not putting all funds into a single term cd...

Also, was wondering, what other strategies are people taking action here? Sure, bank accounts/credit union accounts are insured, bonds are pretty safe backed by the US, or local goverments...but any no brainer investment strategies (simple, like the cd ladder) into other securities, trying to keep risk low or lower...stressing on the "no brainer" and "less risky"part...

Just wondering how people are doing now...going into mutual funds? getting into the stock market? or going into forex? The thing with forex is that, you could automate the trades, mainly thru the usage of scripts or EA (expert advisor) on the mt4 trading platform...so that U don't have to be glued to the monitor...

Just looking for opinions...! thanks!

2
Comment #9 by Pablo Savin (anonymous) posted on
Pablo Savin
Hello, Yes it is I, PabloSavin. I will still do the CD ladders, I am in it for the long haul. Been doing it for over 25 years. Have some CD'd at 5% not due till 2014 - 2016. PFCU / NFCU / Capitol One / and a few others. Have a ladder that contains about 25 CD's and every year about 20% come due. Making interest and keep adding to the ones the ones that come due. Pays enough to live on , for now. If the rates go up to 4% in the next few years, no problem.

2
Comment #10 by AnnMarie (anonymous) posted on
AnnMarie
I threw some of those Israeli bonds into the CD mix, definitely helps raise my avg. yield as the 10-yr. are now 3.78% and I get interest checks twice yearly.  The bank CD's are a real problem now, though, especially the short-term.

1
Comment #11 by Shorebreak posted on
Shorebreak
I'm doing the same as...

Kaight - #7, Monday, May 14, 2012 - 3:44 PM

1
Comment #12 by Anonymous posted on
Anonymous
Several of my 5.5, 5.75's are coming due this August....I dread to think about it. Anyway, I will then go short term with the proceeds, since there is not all that much difference between the 5 year rate and short term rates now. If I change my mind, I can always switch to a whooping 1.75 to 2.00 5 year CD later. Like most of you, I have no idea of where things are going, but I have a 'hunch' that if Romney is elected, things, rate wise, could turn for the better fairly quickly because of the 'perception' that he knows what he is doing, as opposed to what we have now. Heres hoping.

6
Comment #13 by Anonymous posted on
Anonymous
Anonymous - 12,

I believe many people are in your same situation.  From what I read and heard many of the 5 year CDs that were paying over 5% are now coming to maturity.  I'm in the same boat.  We (savers) need a Bailout like everone else got.  But that will never happen, since we'll be forced to cut back on expenses or start using our principle.  Anyway good luck.


3
Comment #14 by Anonymous posted on
Anonymous
Since we started with CD's in the late 70's we have purchased the highest rate CD no matter how long or short. We now live off social security and have our emergency money in  reward checking accounts and use that interest if needed or save it. Works for us. We compound the interest in our CD's and as CD's come due we add to them if we are able.

No one knows what will happen we just try to do what is best and still be able to sleep at night. I don't even think about CD penalties because we have the reward checking accounts and also if we need money we would just cash one of the CD's in.

6
Comment #15 by Anonymous posted on
Anonymous
I did not renew any of my maturing CDs given the pathetic interest rates.  I had to change my strategy entirely and go outside my comfort zone. My CD ladder has been taken down and replaced with a lazy portfilio of Vanguard Index Fund ETFs (BND, VEU, VTI).  I'm gonna lose money but since I kept money in CDs for decades, I can do the same with my lazy portfolio.  It's the long term that counts.

1
Comment #16 by Anonymous posted on
Anonymous
Soon the Banks will have all depositors money in non-interest checking accounts.  CDs will be a thing of the past.  Many thanks to BEN.  Those who opt for the vegas type stock market will have sleepless nights.

1
Comment #17 by Anonymous posted on
Anonymous
#16  Can you disclose where you get your information that "CDs will be a thing of the past"?  Is this just your personal feeling due to the erratic nature of CD interest rates or have you read this in an article?  If you have read it, will you please share the link to the article.  I would like to read who is giving out this information.  What is supposed to happen to all our long term CDs if they become a "thing of the past"? What you are stating is a complete breakdown of our financial and banking system and I can't see US citizens electing people who will take part in such a devastation to many of us.  Thank you for any other information you can provide on this theory.

1
Comment #18 by Anonymous posted on
Anonymous
#17:  My opinion.  Just look at what's going on with the Interest Rates.  The handwriting is one the wall.  My source is BEN's actions.

1
Comment #19 by Anonymous posted on
Anonymous
#17:  Addition info.  I've given up on renewing my CDs at such ridiculous low rates.  Looking into dividend paying stocks and annuities.  It's sad that even the Fed Chairman admitted that anyone receiving less than 2% is loosing money in a bank.

1
Comment #20 by Paoli2 (anonymous) posted on
Paoli2
#17   Oh, I get it.  You are referring to "Ben" Bernanke and what he has done to interest rates.   I just have to believe those people who are writing the articles against his policies now can bring more attention to this and maybe get us some help.  I have to believe this one man can't destroy our interest rates for much longer.    I have researched annuities and just can't go for them anymore than I can do even stocks with dividends.  I'm happy for those who feel they can but I have to find a way to survive with CDs.  Thanks for filling me in with who the infamous "Ben" is.

1
Comment #21 by Anonymous posted on
Anonymous
Paoli2 #17:  Do you understand the extent of what he has done to our economy?  If the Interest Rates ever do raise by any significant amount in our lifetime all the Inflated price of Securities and Bonds will most likely fall.   Another major crisis.  He's put us in a "catch 22"!  

1
Comment #22 by Kaight posted on
Kaight
Bernanke has been a catastrophe.  It's important to remember he was first appointed by Bush II, who got us into this mess and was a disaster.  He was reappointed by Obama, whose policies are keeping us immersed in the mess Bush started.  Obama is a more severe disaster than Bush II, and that's saying something!

Obama, if he is re-elected, will put Bernanke in for a third term.  Romney is no prize, God knows.  But he has promised not to reappoint Bernanke, and that's good.

My concern about Romney is that he might appoint a Bernanke clone, or somebody even worse!!  Romney is not a Conservative, but Conservative policies and approaches are what we need in place today.  Regardless, it's simply not going to happen in the next 4 years.

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