What Is Your CD Strategy For Rising Rates

Wonder | Jun 20, 2022 | 11 posts since 2022

Just curious how long to wait before starting to purchase CDs? Have a substantial amount to invest. What are your thoughts?

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Answers

Blade | Jun 20, 2022 | 49 posts since 2018

I'm in the same boat as you. I've decided to start this week with a small CD ladder of 9 months at 2.6% - 18 months at 3% and 2 years at 3.15%. They will be new issue brokered CD's either through Vanguard or Fidelity. I'll probably deploy about 40% of my cash this round and hold back the rest for the impending July rate hikes and beyond. If rates are still climbing 9 months from now my first CD will mature out and I'll have those funds to deploy. I do expect to be fully invested by the end of this calendar year.

Wonder | Jun 20, 2022 | 11 posts since 2022

Thanks Blade. I think I'll wait a bit longer and then consider a similar strategy.

highly_intrestd | Jun 20, 2022 | 23 posts since 2022

I agree with deplorable_1, don't lock up CD longer than 2 years as you will likely be faced with a 6 month early withdrawal interest penalty. With the fed signaling more increases into 2023 to the tune of another 2% or so, I'd wait until they ease to lock up a longer term CD, with the 5 year likely in the 4.5-5% range by early 2023. I would also put as much as I can into I-Bonds which yield the highest guaranteed rates (9.62% as of today) as long as inflation is high...

FirstNation | Jun 20, 2022 | 85 posts since 2021

This time around, I'm phasing-out CD's and moving into TIPS.

Last time around, the best CD was 4% and inflation was 2% (the best I did was 3.875%).
Right now, you'd need a 10%+ CD to beat inflation by 2% (not going to wait for that to happen).
Settling for 3%, 4% or even 5% with inflation at 8.6% and climbing is insane.

Since all I want to do is breakeven, TIPS will do the job.
Granted, the yields on them are paltry, but protecting capital is all I want to do.
Unlike my CD's that lost 5% to inflation during the course of the last year.

I just got too complacent about things.
In the last 50 years, this is the first time that I've had a 5 year CD have a negative yield.
ZIRP, QE were bad enough, but adding runaway inflation to the mix is a disaster.

Even with my copious amounts of cash and a short time horizon, that's just too much to lose on an annual basis.

lou | Jun 29, 2022 | 1,004 posts since 2010

Are you buying the tips in a retirement account?

Cdbob | Jun 24, 2022 | 49 posts since 2017

What I’ve been doing is as rates increase by the fed, I’ve been cashing out of my lowest percentage longer term cd and paying the penalty and reinvesting in the higher rate brokered cd’s or credit union cd’s as they become available. I take the penalty hit but will make it up in a short time and the penalty is deductible. I’ll continue when the fed raises again in July, etc. With the brokered cd’s it’s pretty easy to even out your ladder if you have one and the rates are a little better than the credit unions right now.

Ratesaver | Jun 26, 2022 | 187 posts since 2013

Wonder I hope your grabbing the cds as they are coming out. 3.00 and above is starting a ladder and go from their... Make them 25 to 35 thousand or a little above and spread them out over a 5 yr spread... Penfed it a good start with 3.50 ... I already am doing that one

JeffinEasternFL | Jun 26, 2022 | 744 posts since 2020

Had one Jumbo 5yr CD ($250K principle plus interest) at 2.3% come due several months ago, have another Jumbo same amount coming due this November also 2.3%. Interest compounds in every CD I own. Still hold two other Jumbo CDs compounding in the ladder coming due in 8/23 (2.7%) and 9/24 (3.03%). I have about $3/4M in I bonds with the fixed rates of 1.1% to 3% from two decades ago that mature beginning 2031, and enough equity exposure to the markets via managed wrap account mutual funds (98% equity exposure and .55% management fee) and a variable annuity wrapped inside my IRA (80% equity/20% other holdings) that pays me $72K+ annually with a "7% withdrawal for life rider" -that I sold myself when I retired at age 47in 2008. I rollover that annual $72K+ payout to defer taxes that I started at age 59.5 into another wrap managed IRA (.55% mgt costs annually) that's 65%/35% equity/other exposure. So no more I Bonds nor annuity dollars needed. Two modest non-participating whole life policies I sold myself long ago are paid up and still compound at 5% to provide a fast, tax free death benefit and pay bills until my estate is settled. I have two govt pensions from the military and VA as a disabled vet for $90K+ annually. Holding off on Social Security until 70 in 2030 unless my health declines as I have more income from these two checks alone annually than I spend - even living in a country club. My significant other 25~ years my junior also has a modest SS check of $10K~ via disability. Home, etc., all paid for cash and so large purchases are not needed as about everything I own was "new" in 2018. (I haven't taken a loan since a business computer lease for $5K I paid off in less than a year in 1992). Over $400K cash now sitting at Merchant Bank of Indiana FDIC covered in the "Sweep Program" at 1.51% now - probably until winterish when I'll look for two new jumbo CD's to expire in later 2025 and 2026 to complete my 4 CD ladder (or perhaps 5?) when next one matures, meaning I'll be looking at $675~K cash available. So I will ladder $500K into two longer term CDs and $100K into a shorter term CD around this winter (?) - or that $100K into the 98% equity account if stocks get cheaper. (I love to buy equities on SALE!). I can afford more equity exposure since I will never spend it! So that will still be 7 figures into CD's and liquid $$ at MBoI leftover. (Like I mentioned, I'll drop $100K~ into the market IF stocks decline more like 2010-2011 - when I invested a good amount in stocks when things looked very bleak :). I hold maybe $4K in various crypto (that was $10K haha once). Have about $10K~ very liquid local cash. My income tax bill is under $10K annually due to tax planning and harvesting losses through the last two decades while the winners run rampant. I appreciate this board and Ken's work for sure! Come fall/winter I'll be shopping hard for those 2 or 3 more CD's (I prefer a bank/CU that does have actual offices and/or/at least a physical branch in the USA, an "A" rating at minimum, that's well spoken of here and not purely in "space" with it's business model)...

lou | Jun 29, 2022 | 1,004 posts since 2010

$3/4M in I bonds? Is that millions or thousands?

hank | Jun 21, 2022 | 110 posts since 2016

It's a very good question. I wish I had a good answer. I was going to put some money into that 3.25 percent cd that usalliance had but it disappeared too quickly.I also am waiting to see what else happens with rates.It seems that usually credit unions have the best rates but that's not the case right now. Hopefully, they will come out soon with some high rates, perhaps after the next rate hike in July.

Vernazza | Jun 28, 2022 | 31 posts since 2022

Yesterday, I opened up 5 year 3.5%, Penfed CD’s and 3.45%, 5 year IRA CD’s. If rates really jump this fall or beyond, will break CDs, pay the penalties, claim EWP on taxes, and relock up again.

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