Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
CD laddering in rising rate environment
Old 01-05-2017, 11:14 AM   #1
Thinks s/he gets paid by the post
 
Join Date: Nov 2011
Posts: 2,321
CD laddering in rising rate environment

Like many I've been using a 5-year CD ladder, but with interest rates forecast to be rising, what variations may be useful? I'm seeing rates on 2 to 3 year CDs creeping up while 5-year rates barely budge. Assuming the CD can be broken with reasonable penalty, say, a few months of interest, in this environment does it makes sense to stick with a 5-year CD when it pays only 0.25% to 0.5% more than a 2-year?
__________________

__________________
GrayHare 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 01-05-2017, 12:12 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,382
Don't underestimate the value of the option to surrender early. If you get .5% more than a 2 year and the surrender penalty is 1%, you are almost certainly better off with a 5 year CD even if you get 2 years in and it is worth surrendering and chasing a higher rate.
__________________

__________________
"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
Old 01-05-2017, 12:27 PM   #3
Thinks s/he gets paid by the post
 
Join Date: Aug 2004
Location: Laurel, MD
Posts: 2,930
I've actually been extending out to 84 months in many cases. I have considered splitting the deposit into multiple certificates or multiple terms. It depends on the early withdrawal policy (e.g. are partial withdrawals permitted?) In the case of a reasonable Early Withdrawal Penalty, I just take the longest possible term and the rate can be much higher even after the penalty. This early withdrawal penalty calculator is a handy tool to evaluate the effect of taking early withdrawals.
https://www.depositaccounts.com/tool...alculator.aspx
__________________
...with no reasonable expectation for ER, I'm just here auditing the AP class.Retired 8/1/15.
jazz4cash is offline   Reply With Quote
Old 01-05-2017, 12:28 PM   #4
Thinks s/he gets paid by the post
 
Join Date: May 2014
Location: Utrecht
Posts: 2,187
+1 on that.

That said, I'm not in CDs right now since the yield curve is absurd in Euro and I want to be able to move tax jurisdiction easily.
__________________
Totoro is offline   Reply With Quote
Old 01-05-2017, 01:03 PM   #5
Moderator Emeritus
 
Join Date: May 2007
Posts: 11,013
As long as the early withdrawal penalty is reasonable (6-months or less), I am going for longer maturities (60-84 months) right now.
__________________
FIREd is online now   Reply With Quote
Old 01-05-2017, 01:08 PM   #6
Recycles dryer sheets
 
Join Date: May 2015
Location: Charleston, SC
Posts: 197
I've been laddering with 12-month CD's at my local Navy FCU. The difference in Interest Rates for longer terms like 4 or 5 years was not great enough to tie up money for that long. The framework for the ladder is every 2 months I have something up for renewal. I don't think I'll extend the term on the next renewal just yet, but I'll continue to monitor the yield curve.
__________________
It's a small mind that can only think of one way to spell a word.
FiveDriver is offline   Reply With Quote
Old 01-05-2017, 01:29 PM   #7
Thinks s/he gets paid by the post
Dash man's Avatar
 
Join Date: Mar 2013
Location: Limerick
Posts: 1,662
PenFed just increased their certificates to 2.28% APY for a five year CD and 2.38% for a seven year certificate.
__________________
Dash man is offline   Reply With Quote
Old 01-05-2017, 01:36 PM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,382
Quote:
Originally Posted by Dash man View Post
PenFed just increased their certificates to 2.28% APY for a five year CD and 2.38% for a seven year certificate.
Nice rates, but the early withdrawal penalty language makes them a no-go for me:

Quote:

2) Certificates Having a Term Greater Than Six
Months.
a) If redeemed within the first year, all dividends
will be forfeited.
b) If redeemed thereafter, but prior to the maturity
date, the early withdrawal penalty will equal 30%
of what would have been earned if the certificate
had been held to maturity, not to exceed total
dividends earned
__________________
"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
Old 01-05-2017, 01:42 PM   #9
Thinks s/he gets paid by the post
Dash man's Avatar
 
Join Date: Mar 2013
Location: Limerick
Posts: 1,662
We don't buy CDs with money we might need during the term of the CD. If we withdrew them early it'd only be because the rates had risen so much we'd want to roll them over.
__________________
Dash man is offline   Reply With Quote
Old 01-05-2017, 01:55 PM   #10
Full time employment: Posting here.
RetiredGypsy's Avatar
 
Join Date: Mar 2008
Posts: 895
Navy Fed has a special 1 year 3% CD with a cap of $3k that you can renew every year; if you have a spouse and kids, you can stick $3k in each of their own accounts too if you wanted. Other than that, the best I've found was a recent 2% 17 month CD at Navy Fed as well.

I've only opened CDs with a penalty of 6 months interest, thinking that it may be worth pulling out early for better rates/emergency whatever. Every time the math has worked out best to get the highest interest and longest period possible.
__________________
I'm free and I like it!
RetiredGypsy is offline   Reply With Quote
Old 01-05-2017, 02:24 PM   #11
Recycles dryer sheets
 
Join Date: May 2015
Location: Charleston, SC
Posts: 197
Navy's 3% CD is for IRA's only.

There's not enough difference between their 1 year and their 3 year IMO. It's only about 0.4% -- on $10K what is that 40 bucks ??
__________________
It's a small mind that can only think of one way to spell a word.
FiveDriver is offline   Reply With Quote
Old 01-05-2017, 02:24 PM   #12
Thinks s/he gets paid by the post
Dash man's Avatar
 
Join Date: Mar 2013
Location: Limerick
Posts: 1,662
Quote:
Originally Posted by RetiredGypsy View Post
Navy Fed has a special 1 year 3% CD with a cap of $3k that you can renew every year; if you have a spouse and kids, you can stick $3k in each of their own accounts too if you wanted. Other than that, the best I've found was a recent 2% 17 month CD at Navy Fed as well.

I've only opened CDs with a penalty of 6 months interest, thinking that it may be worth pulling out early for better rates/emergency whatever. Every time the math has worked out best to get the highest interest and longest period possible.


We can't join Navy FCU since I'm separated from the Air Force over 20 years. The $3,000 limit is not what we're looking for either. But thanks for the info. We'll most likely open a new PenFed CD next week when the money from some exercised options hits our account.
__________________

__________________
Dash man 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
Laddering muni bonds 67walkon FIRE and Money 4 01-28-2011 07:39 AM
How to invest for a rising interest rate environment jIMOh FIRE and Money 7 10-10-2008 05:23 AM
question about CD laddering Keyboard Ninja Young Dreamers 7 09-05-2008 08:06 AM
Rising Rate Fund RockOn FIRE and Money 8 03-25-2008 07:25 PM
Laddering- CD's vs Treasuries Gearhead Jim FIRE and Money 14 08-31-2005 03:48 PM

 

 
All times are GMT -6. The time now is 11:45 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.