Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
CD Ladder vs. MM
Old 05-12-2006, 09:18 AM   #1
Recycles dryer sheets
 
Join Date: Dec 2005
Posts: 388
CD Ladder vs. MM

I have read here about using a CD ladder to invest money you plan to slow feed into your income stream or just set aside as a emergency fund. What are the advantages to this approach as opposed to simply using Vanguard Prime MM or a similar fund? Thanks in advance.

setab
__________________

__________________
I told you I'd taunt you a second time.
setab 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!

Re: CD Ladder vs. MM
Old 05-12-2006, 09:25 AM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Re: CD Ladder vs. MM

If you use a MM, you get more liquidity. If you use a CD ladder you potentiall get more interest, but it depends on what short term rates do during the term of the CDs. Its probably a wash, realistically.
__________________

__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Re: CD Ladder vs. MM
Old 05-12-2006, 09:27 AM   #3
Full time employment: Posting here.
kaudrey's Avatar
 
Join Date: Feb 2006
Location: Alexandria, Va
Posts: 941
Re: CD Ladder vs. MM

Hi,

Well, the idea is to lock in the higher rates associated with longer term CDs, but giving you flexibility by laddering them, so some of your money will be liquid every year.

However, with the way rates are right now, you don't get much extra interest from a 5 year CD over what you can get at ING or similar high-interest savings accounts, so I think some of the "benefit" is not that strong right now.

Also, CDs issued by a bank are FDIC-insured, whereas MMs or other such accounts may not be, depending on where they are housed. *

I'm sure someone here can come up with a much more intelligent answer, but it's a start...

Karen *
__________________
Two roads diverged in a wood, and I - I took the one less travelled by...
kaudrey is offline   Reply With Quote
Re: CD Ladder vs. MM
Old 05-12-2006, 09:59 AM   #4
Recycles dryer sheets
 
Join Date: May 2005
Location: In the fog of San Francisco
Posts: 241
Re: CD Ladder vs. MM

Wouldn't another factor be that you can lose money in a MM acount (at least that is my impression) where the CD principal and interest is secure? This would be something a bit different from the FDIC insurance issue.

cheers,
Michael
__________________
Michael Moore is offline   Reply With Quote
Re: CD Ladder vs. MM
Old 05-12-2006, 10:03 AM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Re: CD Ladder vs. MM

Quote:
Originally Posted by The Other Michael
Wouldn't another factor be that you can lose money in a MM acount (at least that is my impression) where the CD principal and interest* is secure?* This would be something a bit different from the FDIC insurance issue.

cheers,
Michael
In theory, you can lose money in an MMA. In practice, on the rare historical occasion this has happened, I believe the fund sponsor has made it up. I would imagine that VG, Fido, Schwab, etc. would almost certainly do so.

Oh, and pick your bank for CDs carefully. Principal (not interest) is guaranteed by the FBIC, but it can be a long, painful process to get your money back. Its a lot simpler to just pick a solid bank in the first place.
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Re: CD Ladder vs. MM
Old 05-12-2006, 10:45 AM   #6
Thinks s/he gets paid by the post
 
Join Date: Mar 2004
Posts: 2,083
Re: CD Ladder vs. MM

I got a large chunk of money after the sale of my house and I am still hedging where to invest it. So right now beside the MM 4.5% accounts for total liquidity, I am purchasing over the next 6 weeks 4 week bills online through Treasury Direct. I am squeezing another .25% plus state tax free interest. It's liquid enough for me until I can make so better investment decisions.
__________________
I look to the present moment because that's where I live my life.
MJ is offline   Reply With Quote
Re: CD Ladder vs. MM
Old 05-12-2006, 12:10 PM   #7
Thinks s/he gets paid by the post
lazygood4nothinbum's Avatar
 
Join Date: Feb 2006
Posts: 3,895
Re: CD Ladder vs. MM

early retired before my time (really can't afford it before inheritance that is likely months away), i felt the need to keep enough money extremely safe and very liquid to hold me a few years if required.

just yesterday i purchased what i thought looked like a nice product through bank. a 24-month step rate ira. (yes, i'm taking 10% penalties on early withdrawal but based on the level of misery at a job gone bad it's still a favorable quotient.)

(annual % rate/effective on day) 4.5/1; 4.76/183; 5.02/366; 5.28/548 for a blended rate of 4.89.

i don't expect to need this money at all for now, but just in case, i can withdraw without bank penalty any amount minus $1,000 on three specific days between now and may 2008.
__________________

__________________
"off with their heads"~~dr. joseph-ignace guillotin

"life should begin with age and its privileges and accumulations, and end with youth and its capacity to splendidly enjoy such advantages."~~mark twain - letter to edward kimmitt 1901
lazygood4nothinbum is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
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
Don't need no stinkin' bonds Rich_by_the_Bay FIRE and Money 52 04-05-2007 03:43 AM
Building a ladder nun FIRE and Money 16 05-15-2006 06:38 PM
Fell off Ladder - What an Idiot! TromboneAl Other topics 12 06-24-2005 07:13 PM
Ladder vs Short Term Bond Fund WilliamG FIRE and Money 10 03-12-2005 04:25 AM
How Long is Your Ladder? wabmester FIRE and Money 15 02-02-2004 08:20 PM

 

 
All times are GMT -6. The time now is 06:24 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.