Could A 5 Year CD In 25 $10K Units Be The Equivalent Of Laddering?

John Sears | Nov 20, 2015 | 67 posts since 2015

I have about $500K maturing with Ally Bank the end of May, some sole, others joint to get enough FDIC. Since there is a good chance interest rates will rise next year, I'm thinking that structured in this manner, it would be the same or similar to laddering with the added benefit that each additional month would be a better payout if it were broken to move somewhere else.

I don't see the wisdom of putting this money "on hold" in a series of 1.1% MM's or Savings Accounts, hoping that rates will continue to rise.

Is this a sound strategy, or dumb?

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Answers

pearlbrown | Nov 21, 2015 | 2,298 posts since 2010

Breaking up the money into smaller bundles is a good idea and a good start, but the bigger question is, what are you going to do with the 25 $10K units?

The purpose of laddering is to allow you to take advantage of higher rates while at the same time ensuring that you have access to your money regularly. You can build a short- or long-term CD ladder or mix the two for maximum liquidity. Fortunately you have plenty of time to think about this and make your decision based on where you think rates are headed as May approaches and build your ladder accordingly.

Ken wrote this great article which will be a good resource to help you make the right call in structuring the ladder.

Good luck to you.

John Sears | Nov 21, 2015 | 67 posts since 2015

At this point, 5 year CDs between Barclay and Synchrony look like the best approach. A 5 year CD becomes more profitable at 15 mos. when broken than the current high rate of 1.3% for one year. So if I even broke it at 16 mos. I would be ahead.

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