Join Early Retirement Today
Reply
 
Thread Tools Display Modes
CD ladder question
Old 08-28-2015, 08:47 AM   #1
Recycles dryer sheets
Blueskies123's Avatar
 
Join Date: Sep 2014
Location: Miami
Posts: 337
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).
Blueskies123 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 08-28-2015, 03:52 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Mar 2003
Posts: 18,085
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.
__________________
"All animals are equal, but some animals are more equal than others."

- George Orwell

Ezekiel 23:20
brewer12345 is offline   Reply With Quote
Old 08-28-2015, 05:31 PM   #3
Full time employment: Posting here.
ronocnikral's Avatar
 
Join Date: Apr 2010
Posts: 853
I've found depositaccounts.com to be a good resource for rate comparison
ronocnikral is offline   Reply With Quote
Old 08-28-2015, 05:40 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,266
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.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Old 08-28-2015, 10:45 PM   #5
Full time employment: Posting here.
 
Join Date: Aug 2013
Location: New Jersey
Posts: 910
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.
Al18 is offline   Reply With Quote
Old 08-29-2015, 06:03 AM   #6
Thinks s/he gets paid by the post
 
Join Date: Jan 2014
Posts: 1,174
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.
MBSC is offline   Reply With Quote
Old 08-29-2015, 09:30 AM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Mar 2003
Posts: 18,085
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.
__________________
"All animals are equal, but some animals are more equal than others."

- George Orwell

Ezekiel 23:20
brewer12345 is offline   Reply With Quote
Old 09-01-2015, 05:56 AM   #8
Recycles dryer sheets
jetpack's Avatar
 
Join Date: Aug 2013
Posts: 437
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.
jetpack is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
CD ladder question cardude FIRE and Money 21 11-25-2008 08:32 AM
CD Ladder vs. MM setab FIRE and Money 6 05-12-2006 11:10 AM
Fell off Ladder - What an Idiot! TromboneAl Other topics 12 06-24-2005 06:13 PM
Ladder vs Short Term Bond Fund WilliamG FIRE and Money 10 03-12-2005 03:25 AM
How Long is Your Ladder? wabmester FIRE and Money 15 02-02-2004 07:20 PM

» Quick Links

 
All times are GMT -6. The time now is 02:53 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.