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CD ladder question
Old 08-28-2015, 09:47 AM   #1
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CD ladder question

I just retired a few months ago and am considering starting a CD ladder for my cash flow needs in 2017 and 2018. I was looking at Fidelity's CD ladder tool to see who was selling CDs and I had a few questions. I have 2016 covered in a money market.

1) Do you prefer new issues or secondary issues? Is one better than the other?

2) My cash flow needs are $100K per year. I saw GE bank and Capital one bank have some of the highest interest rates. Would you have any concerns purchasing $100K or $200K in CDs from just one (non-traditional) bank? Do you spread your purchases over several banks or you not worry about it as long as the total is under $250K, (FDIC limit).
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Old 08-28-2015, 04:52 PM   #2
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As long as you are under the FDIC limit, everything is kosher. Other than that, I just look for the highest rate I can get in the 3 year and under maturity bucket.
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Old 08-28-2015, 06:31 PM   #3
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I've found depositaccounts.com to be a good resource for rate comparison
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Old 08-28-2015, 06:40 PM   #4
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You probably don't need to get too scientific about it. Online savings, fully FDIC insured are paying 1% or a tad more or less. 2 and 3 year CDs are 1.25%-1.65% so on a $100k CD the difference is only $250 to $650 a year.

No need to worry as long as you stay under the FDIC limit but it gets a bit complicated and there are tools to evaluate your coverage on the FDIC website.
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Old 08-28-2015, 11:45 PM   #5
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I prefer bank or credit union CD over brokered CD's from Fidelity/Vanguard because:
1. Interest does NOT compound with brokered CD's
2. Bank/Credit Union CD's are typically easier to redeem early
3. If you have to redeem early, it will typically cost you more with brokered CD's and there's no fixed price.
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Old 08-29-2015, 07:03 AM   #6
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Quote:
Originally Posted by Blueskies123 View Post
I just retired a few months ago and am considering starting a CD ladder for my cash flow needs in 2017 and 2018. I was looking at Fidelity's CD ladder tool to see who was selling CDs and I had a few questions. I have 2016 covered in a money market.

1) Do you prefer new issues or secondary issues? Is one better than the other?

2) My cash flow needs are $100K per year. I saw GE bank and Capital one bank have some of the highest interest rates. Would you have any concerns purchasing $100K or $200K in CDs from just one (non-traditional) bank? Do you spread your purchases over several banks or you not worry about it as long as the total is under $250K, (FDIC limit).
1) I keep 3 years of expenses plus emergency funds in a high yield savings account for the reasons member pb4uski stated. When I purchase 4-5 year CDs, I prefer secondary market CDs because they usually have a slightly higher yield even after the price markup for commission.

2) I screen out callable CDs and banks I've never heard of. Then YTM (yield to maturity) is my only criteria since they are FDIC insured, the YTM at my brokerage already reflects the markup, and I have no intention to sell early since I have a high yield savings account for emergencies. The brokered CDs I have purchased pay simple interest semi-annually, like a bond.

I do not use CD ladder tools as they may miss a 58 or 61 month CD with higher YTM when searching 60 months.
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Old 08-29-2015, 10:30 AM   #7
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Quote:
Originally Posted by Al18 View Post
I prefer bank or credit union CD over brokered CD's from Fidelity/Vanguard because:
1. Interest does NOT compound with brokered CD's
2. Bank/Credit Union CD's are typically easier to redeem early
3. If you have to redeem early, it will typically cost you more with brokered CD's and there's no fixed price.
If we are talking about maturities of 5 years or greater, I fully agree. Down around a year or two, it really does not matter, IMO.
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Old 09-01-2015, 06:56 AM   #8
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Quote:
Originally Posted by Al18 View Post
I prefer bank or credit union CD over brokered CD's from Fidelity/Vanguard because:
1. Interest does NOT compound with brokered CD's
2. Bank/Credit Union CD's are typically easier to redeem early
3. If you have to redeem early, it will typically cost you more with brokered CD's and there's no fixed price.
I prefer brokered CD's
1. Interest is not locked up in CD, you get money out each quarter
2. Brokered CD's are easier to buy and sell. No need to go through
hoops at maturity to get your money. (most banks will auto renew your CD at maturity, even if their interest rates are very low)
3. brokered CD's can rise in value and can be sold at any point.
4. Brokered CD's (usually) have higher interest rates
5. Brokered CD's are easier to spread among multiple banks with out opening and managing a new account each time.
6. Easier to find long term 5+ year CDs, in secondary market, you can find
part year terms to spread out your ladder better.

About the only place brokered cd lag is with short term (2yrs or less)

One other caveat I'll note on the secondary market. The face value in insured by FDIC.
Depending on rates, you pay a few cents per dollar more or less that face value.
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