Comments on: How to Create a CD Ladder

By: Mike

Mike — Wed, 15 Sep 2010 13:22:33 +0000

I just finished following this for part of my emergency funds. I now have a CD ladder where one matures every month for the next year!

To make this even easier, I used Ally bank. They were able to set up automatic renewal of each CD into new 12month CDs. I never have to think about it again, unless I actually need to withdraw money from a CD!

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[...] to cash, or are already in cash form. This calculation would account for any stocks, bonds, CD ladders, and cash-based accounts, but would not include “hard assets” like cars and [...]

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How to Survive Bankruptcy and Foreclosure — Fri, 09 Jul 2010 09:09:57 +0000

[...] How to create a CD ladder Frugal Dad [...]

By: Ben

Ben — Sun, 04 Jul 2010 14:29:13 +0000

CD Ladders are a GREAT way to hedge against interest rate changes!!

This strategy is a HOT topic on blogs right now, but it surprises me this aspect hasn’t been discussed. People seem to focus primarily on how money continuously turns over. But keep in mind it is a long term strategy, and it also works for bond investments as well (also popular now).

Putting it in terms of bonds (which can earn up to 4/5% if you go out far enough and don’t insist on AAA credit ratings), if you ladder with a portfolio of 1 year, 2 year, 5 year, and 10 year bonds, etc, you will similarly have money continuously turning over. All you need to do is reinvest in a 10 year bond. This also means that if interest rates rise 5 years out, you will have *some* money mature that you can invest at a higher rate.

Sure, its not as great as investing *all* your money at the higher rate, but not even the smartest of the smart can guess where rates will go *when* with precision. But if you follow a good laddering strategy long term, you will at least be sure that some of your money gets the best rate at the right time.

The flip side is equally attractive: if, in 10-15y interest rates decrease again (as is currently forecasted with an inverted yield curve), only *part* of your money will need to be reinvested in a low-rate environment (something that most consumers couldn’t otherwise strategize for)!

By: Steve

Steve — Fri, 02 Jul 2010 20:29:17 +0000

What’s nice about this is you’re breaking your money up among several CDs, which is great for an emergency fund. If you dropped all your $6K into just ONE CD, the penalty for breaking it early, if needed, would ruin your return. But by dividing it up into many $500 (or even less if you want) CDs, if you just need a quick $400 for a car repair or $900 to cover a surprise bill, you only have to break one or two of the CDs, and you can keep the others going, saving you a lot of penalties.

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[...] How to Create a CD Ladder – Frugal Dad [...]

By: Frugal Dad

Frugal Dad — Fri, 02 Jul 2010 19:56:05 +0000

Fair enough, and an excellent point! A CD is also known as a certificate of deposit, and is essentially a “time deposit.” They work very similar to a savings account, but instead of being able to withdraw money, you agree to keep the money on deposit for an agreed to length of time (6 months, 12 months, even up to five years and higher).

Generally, the longer the term the higher the interest rate offered by the bank.

By: uninformedandorconfused

uninformedandorconfused — Fri, 02 Jul 2010 19:04:24 +0000

A bit late to the party but, would it be a good idea to define what “CD” stands for here? You start off with an acronym and continue to use it. Maybe it’s a US-only financial product(?) and not being American I’m missing something otherwise obvious but I think it would make your article better and clearer. Meant to be positive criticism btw Thanks

By: Ace

Ace — Thu, 01 Jul 2010 22:24:18 +0000

hmm sounds pretty interesting. I’ll definitely look into that. Thanks for the tip!

By: James

James — Thu, 01 Jul 2010 22:09:47 +0000

i am personally not a fan of CD’s i have had them before and have been tied up with them to the point where i missed out on other investment opportunities so i hear where you are coming from on some of these points.