18 Month Cd Ladder Versus A 5 Year Cd Ladder

Ltssharon | Apr 8, 2022 | 471 posts since 2020

For many years I had used a 5 year cd ladder with an equal amount in each year.. This is while I was busy working rather than pondering finances. .Then there came a chance to take early withdrawal penalties and put money in an add-on cd earning 3.25 percent and maturing in 2024. I quickly switched things around, took early withdrawal penalties and did so.

Now, I hear some people are preferring a ladder with 6,12, and 18 month penalties.

Am I probably correct in assuming that the 5 year cd ladder has fallen out of favor because cd rates are expected to be going up rapidly in the next 12-18 months? Are people more or less waiting for rates to go up, and then going to switch back to 5 year ladders?

I need to have some sort of principles at work. I am 71 years old.and am enjoying thinking about the investmentl world logic these days. Thank you. for your thoughts on the length of ladders in this environment.

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Answers

Over6T | Apr 8, 2022 | 31 posts since 2012

I'm in your same age bracket, with similar concerns. My rule of thumb: In a rising interest rate market go as short of a duration as possible - conversely, go long in flat or falling interest rate market.. I've taken a small position with NASA's 1.2% / 15mo CD. However, I'm holding back with any other CD's since I believe the interest rates will rise rapidly, re: the rate of change in PenFed's 2.5%/5yr CD as an indicator. Once the 1 - 2 yr rates hit 3+%, I'll likely start laddering in, and if/when we see 5%/5 yr rates I'll likely take a larger/longer position.
It's worth commenting that when CD rates rise above 3% (short or long duration), it challenges the alternative dividend income investing strategy of the stock market. At my age I'd rather have 3+% "guaranteed" income rather than 4-5% stock dividend income that is subject to the vagaries of Mr. Market.

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Ltssharon | Apr 8, 2022 | 471 posts since 2020

Thankyou! Just today I went ahead with a 6 month brokered treasury bill. I am going to print out your thoughts and save and ponder them. Thankyou for including the possible indicators you watch

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jack12 | Apr 9, 2022 | 307 posts since 2021

I am not buying anything longer than a 2 year right now-
To me the premium for going longer is just not enough

Not doing a 6 month as my CU pays almost as much on a savings acct

I might do a 12 and an 18 and a 24
(Did buy a 24 early friday morning that I guess closes on the 13th)
And that same CD went up 5 basis points for the next date which is I guess 2 weeks farther out

GOLDMAN SACHS BK 2.35000% 04/15/2024

What I like about this is it pays interest monthly so I can pay small bills without having to worry about incurring a fee for going over 3 ACH outs at my CU

I guess the treasuries do not do that

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jack12 | Apr 9, 2022 | 307 posts since 2021

I just saw where someone posted the 6 month treasury went for 1.24%
Wow

My savings only pays .75%

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Ltssharon | Apr 8, 2022 | 471 posts since 2020

Poster here. I misspoke. I meant to say 6, 12, and 18 month maturities (not 6, 12, and 18 month penalties)

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