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CD Ladder 5 year renewal
Old 11-05-2014, 02:56 PM   #1
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CD Ladder 5 year renewal

I set up a CD ladder for a part of my portfolio. Started out with 10 years, but let it shorten to 5 years given the interest rate curve. The intention of the CD is to function as a buffer when stocks go very volatile, and should hold living expenses for at least 5 years (up to 10). The reason for the ladder is to get a higher overall interest rate while every year at least one year of living expenses is available.

Since my renewal date is next month, here's my dillemma:

5 year CD best rate available: 2.3%
savings account best rate available: 1.65%

Current inflation eurozone: 0.7%
expected inflation 2015 / 2016 / 2019: 1.2% / 1.5% / 1.9%

Given that, I'm tempted to shorten the CD Ladder further. 3 year rate is 2.15% for example. 10 years is 3%.

What does the forum think? Note that moving this portion to stocks is not an option for me. Tax is not applicable (no taxes, sweet expat deal). Also, I'm in the eurozone.
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Old 11-05-2014, 03:12 PM   #2
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I would buy the longest CD you can get with a surrender penalty equal to a year or less of interest. If rates hop, you cash it in and reinvest. If not, you do way better than a savings account.
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Old 11-05-2014, 03:23 PM   #3
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Interesting suggestion, didn't think of that.

It seems I can cancel at a penalty of maximum 1.5%.

Thanks.
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Old 11-05-2014, 03:28 PM   #4
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Originally Posted by Totoro View Post
Interesting suggestion, didn't think of that.

It seems I can cancel at a penalty of maximum 1.5%.

Thanks.
I think the yields offered suck in today's market, but the flip side is that a penalty of 6 or 12 months of interest is now tiny. Personally I am hoping that Navy or Pen Fed have a new year's special since I have a 5 year CD maturing in early January.
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Old 11-05-2014, 05:06 PM   #5
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Quote:
Originally Posted by brewer12345 View Post
I would buy the longest CD you can get with a surrender penalty equal to a year or less of interest. If rates hop, you cash it in and reinvest. If not, you do way better than a savings account.
That's how we have our CD ladder set up. We have 5 year & 7 year CDs, set up to mature at intervals so needed expenses can be covered, if necessary, without penalty. If something happens that would require us to cash in early, the penalty fees range from 90 days to 180 days interest depending on the institution. Also, if the interest rates go up enough to make it worthwhile, we can close a lower interest CD and open a new one at the higher rate. And as low as interest rates are right now, it wouldn't be much of a hit.
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Old 11-05-2014, 05:24 PM   #6
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I'm doing the same, but only enough to cover part of expenses. Couple thoughts. First, if we agree we can't time the stock market, why do I want to time my CD purchases? I ask myself this many times. The surrender does help my inner self that wants to think I can beat penfed.

Second thought, last year penfed had a special on 5yr CD at 3%. I bought in Dec then again in Jan. Then last month, Navy credit union had a sale, 1yr at 5%, so I got the 5K limit on that. Others may be able to shed light on history of specials, but I'm planning on getting a special in Dec or Jan for my latest CD ladder rung.
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Old 11-06-2014, 07:02 AM   #7
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hoping to see the cd special at penfed. I agree with brewer, sign up and if interest rates jump, cash in and reinvest. but the way the fed is talking, by the time interest rates go up we might be to old to get to the bank.
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Old 11-06-2014, 07:43 AM   #8
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Just a suggestion for an alternative. If you are lucky enough to have a Stable Value fund in a retirement account it makes a nice alternative to a CD ladder, just be aware that there's no FDIC backing
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