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CD Laddering Question
Old 12-07-2013, 08:23 PM   #1
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CD Laddering Question

I may soon have about $1,500,000 to invest in CD's for my early retirement (in addition to liquid emergency and immediate living costs and a small percentage in stock index funds. The plan is for retirement in 2014.

My issue is that the online cd laddering calculators that I have found ALL want to divide the total amount for me. I don't want $300,000 in each CD. I want to put the bulk (most) of it in a higher interest 5 year CD and then have the 1 - 4 year CD's be just enough so that there is money becoming available every year if needed.

Does anyone know of a site or have a spreadsheet designed so that the amount put in the ladder doesn't have to be your total investment divided by 5?

Thanks
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Old 12-07-2013, 08:43 PM   #2
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I'm probably missing something, but why do you need a calculator?

You may be leaving a few penny's on the table, but it's simple to just put $1,100,000 into 5 year CDs, then put $100,000 into 1,2,3, and 4 year CDs. (or similar simple amounts)

Also, you should review the FDIC insurance rules:

FDIC: Your Insured Deposits
How much insurance coverage does the FDIC provide?
The standard deposit insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.
If you are single, you can deposit up to $250,000 in one bank, but if you are a couple you can have his, her, and our CDs for a total of $750,000 in one bank.
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Old 12-07-2013, 08:51 PM   #3
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Originally Posted by Debinnov a View Post
My issue is that the online cd laddering calculators that I have found ALL want to divide the total amount for me.
You are just opening CDs, forget the "laddering calculators." Just open each CD up individually with the $$ and specific term (duration) that you want. It will be easy.

Added: mpierce raises a good point. Most people would want to avoid exceeding the FDIC limits for insurance coverage. If you've got too much to stay under the cap at one bank, just put some of the money at another bank.
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Old 12-07-2013, 09:59 PM   #4
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I wanted the calculator to show me if I put $1MM in 5 year and then split the rest into 1 - 4 years (possibly at different banks) what the results would be after each CD rolled over for five, ten, fifteen years - how much I would have each year as they matured. I just wanted to get a view of the compound interest on each one and the possible interest after five to fifteen or so years without having to calculate each year as each CD matures, etc.

So at easy glance, for the next ten to fifteen years if I roll each one that is maturing into a five year, what would the dollars look like. Is that unusual to want to see that? The calculators I found online just show you the basics.

I guess what I really need is some sort of spreadsheet.
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Old 12-07-2013, 10:05 PM   #5
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You are just opening CDs, forget the "laddering calculators." Just open each CD up individually with the $$ and specific term (duration) that you want. It will be easy.

Added: mpierce raises a good point. Most people would want to avoid exceeding the FDIC limits for insurance coverage. If you've got too much to stay under the cap at one bank, just put some of the money at another bank.
Fidelity, as well as the other large investment houses, will help you structure CDs with multiple banks to avoid exceeding the FDIC limits. They'll be from the secondary market but, that shouldn't be a problem.
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Old 12-07-2013, 10:06 PM   #6
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Originally Posted by Debinnov a View Post
I wanted the calculator to show me if I put $1MM in 5 year and then split the rest into 1 - 4 years (possibly at different banks) what the results would be after each CD rolled over for five, ten, fifteen years - how much I would have each year as they matured. I just wanted to get a view of the compound interest on each one and the possible interest after five to fifteen or so years without having to calculate each year as each CD matures, etc.

So at easy glance, for the next ten to fifteen years if I roll each one that is maturing into a five year, what would the dollars look like. Is that unusual to want to see that? The calculators I found online just show you the basics.

I guess what I really need is some sort of spreadsheet.
You can do the calculations very easily on Excel.
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Old 12-07-2013, 10:12 PM   #7
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Fidelity, as well as the other large investment houses, will help you structure CDs with multiple banks to avoid exceeding the FDIC limits. They'll be from the secondary market but, that shouldn't be a problem.
Good to know, thanks!

I am very conservative, am entering retirement soon and now that I can get 5 year CD's for 3%, and 3-4 year CD's in the 2% and up range, this could be where a big part of my portfolio goes. And with any luck, maybe the interest rates will rise even more.

I've used 2% in most of the calculators as my annual rate of return with 3% inflation. I will probably have 30% in stock index funds but am hoping to use the CD's as my main go to investment - like I said - risk adverse!

Deb
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Old 12-07-2013, 10:14 PM   #8
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You can do the calculations very easily on Excel.
Meadbh,

Maybe "YOU" could do them easily on Excel! LOL Not me.... after owning a business for over twenty-five years, I always had someone else do the excel projects for me and at this point, I don't think I have the patience to learn formulas, etc. that are that specific.
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Old 12-07-2013, 10:29 PM   #9
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So at easy glance, for the next ten to fifteen years if I roll each one that is maturing into a five year, what would the dollars look like. Is that unusual to want to see that? The calculators I found online just show you the basics.

I guess what I really need is some sort of spreadsheet.
Yes, I think building your own spreadsheet will come closest to showing you the information you are looking for.

Regarding the 10-15 years out thing: Obviously, no one knows what interest rates will be like then, so there's no way to build a spreadsheet that will give you accurate numbers.

Nominal CD interest rates (Source):


Despite this, you probably shouldn't care much about the nominal interest on these CDs, what will be important to you is the real interest rate (that is, the interest rate that exceeds the rate of inflation), since that's the only real growth on your money. Unfortunately, that has also varied by a lot. There's more on that here.
On average, over the last 40 years CD rates have exceeded inflation by about 2% (they aren't doing that well now, obviously).
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Old 12-07-2013, 11:22 PM   #10
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Meadbh,

Maybe "YOU" could do them easily on Excel! LOL Not me.... after owning a business for over twenty-five years, I always had someone else do the excel projects for me and at this point, I don't think I have the patience to learn formulas, etc. that are that specific.
If you can run a business, you can do this:

XL: How to Calculate Compound Interest
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Old 12-08-2013, 07:22 AM   #11
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Good to know, thanks!

I am very conservative, am entering retirement soon and now that I can get 5 year CD's for 3%, and 3-4 year CD's in the 2% and up range, this could be where a big part of my portfolio goes. And with any luck, maybe the interest rates will rise even more.

I've used 2% in most of the calculators as my annual rate of return with 3% inflation. I will probably have 30% in stock index funds but am hoping to use the CD's as my main go to investment - like I said - risk adverse!

Deb
I understand your aversion to (market) risk. Of course, there are other types of risk: inflation, longevity, sequence of returns. Perhaps you've already considered these in your AA decision but, if not you should. Your stated goal of 2% real return with an AA of 30/0/70 is 'possible' to achieve but, not a slam dunk. Historical real returns are: S&P ~ 4% and CDs ~ 2%; meaning your AA could achieve, based on historical averages, ~2.6%/yr. But, if you're doing this now, CD rates are net negative real return and the S&P PE10 is historically high (~20) so, you may not achieve a real 2% return in the near term.

I think the most important thing is to understand that your 30/0/70 AA trades market and sequence of returns risk for inflation and longevity risk. Then, if your comfortable with that, great.
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Old 12-08-2013, 09:45 AM   #12
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Debinnov_a: Calmloki did the calculations for APR if you broke the PenFed CD at earlier intervals as compared to the other CD offerings from them:


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Do note that the penalty for breaking one of those 5-7 year certificates is 365 days of interest.
So if you break the cert at the one year mark you earn 0%
if you break at the two year mark you earn an effective 1.5%
if you break at the three year mark you earn an effective 2%
if you break at the four year mark you earn an effective 2.25%
Go to maturity? 3%

Just saying. I'm in for an amount that is normally kept as fast emergency money. Stocks may make more - historically - but this is interest earning mattress money.
This kind of matches (or slightly beats) their shorter term 2-4 year CD rates:

6 Month 0.300% 0.30%**
1-Year 0.750% 0.75%
2-Year 1.400% 1.41%
3-Year 2.000% 2.02%
4-Year 2.200% 2.22%
5-Year 3.000% 3.04%
7-Year 3.000% 3.04%
Note that you can get a high-yield savings account for 0.85 to 0.9% interest at several institutions and immediate withdrawal of funds with no penalty. So IMO there is no reason to tie money up in a 1 year CD. Better to start at the 2 year mark if you really want something that matures in 2 years.
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Old 12-08-2013, 10:39 AM   #13
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Please feel free to correct me if I am wrong.

cd rates 5 years are not 3%. Penfed has a short term offer out that is not insured.

Companies do go bankrupt ...who would have thought GM would. I would not sleep good banking everything on one good company.

CD currently are not keeping up with inflation, so your 1.5 is going to slowly shrink.
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Old 12-08-2013, 10:52 AM   #14
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Please feel free to correct me if I am wrong.

cd rates 5 years are not 3%. Penfed has a short term offer out that is not insured.
?? All funds deposited in these CDs are insured (through the NCUA). It is as solid as the FDIC insurance.
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Old 12-08-2013, 10:52 AM   #15
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If you can run a business, you can do this:

XL: How to Calculate Compound Interest
I decent calculator for each CD can be found here CD Calculator
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Old 12-08-2013, 10:55 AM   #16
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Originally Posted by Debinnov a View Post
Good to know, thanks!

I am very conservative, am entering retirement soon and now that I can get 5 year CD's for 3%, and 3-4 year CD's in the 2% and up range, this could be where a big part of my portfolio goes. And with any luck, maybe the interest rates will rise even more.

I've used 2% in most of the calculators as my annual rate of return with 3% inflation. I will probably have 30% in stock index funds but am hoping to use the CD's as my main go to investment - like I said - risk adverse!

Deb
You can also go out 10 years on a small amount of the money, if you are reaching your insurance limits. I have been laddering CD's for over 30 years and now deal with over 20 credit unions and banks. Good idea using your rate of return as 2 percent. You'll probably do better. Risk adverse sometimes seems like a bad phrase to many, but I am conservative and rates should go up.Look at joining Apple FCU , Pentagon FCU , and Navy FCU is you can. You can figure having 20 percent of your CD money coming due each year. Going to hit the big 50 in 2 years and ER at 54, all with CD money. Swr will be 2 percent. good Luck
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Old 12-08-2013, 11:27 AM   #17
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Originally Posted by ducky911 View Post
Please feel free to correct me if I am wrong.

cd rates 5 years are not 3%. Penfed has a short term offer out that is not insured.

Companies do go bankrupt ...who would have thought GM would. I would not sleep good banking everything on one good company.

CD currently are not keeping up with inflation, so your 1.5 is going to slowly shrink.
Yes, the CD rate is 3% for 5 years, and it carries the credit union equivalent of FDIC - just as solid.
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Old 12-08-2013, 12:19 PM   #18
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Debinnov_a: Calmloki did the calculations for APR if you broke the PenFed CD at earlier intervals as compared to the other CD offerings from them:




Note that you can get a high-yield savings account for 0.85 to 0.9% interest at several institutions and immediate withdrawal of funds with no penalty. So IMO there is no reason to tie money up in a 1 year CD. Better to start at the 2 year mark if you really want something that matures in 2 years.
I agree, I won't be doing the one year CD unless rates are over what I can get with a savings/mm account!
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Old 12-08-2013, 12:21 PM   #19
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Originally Posted by ducky911 View Post
Please feel free to correct me if I am wrong.

cd rates 5 years are not 3%. Penfed has a short term offer out that is not insured.

Companies do go bankrupt ...who would have thought GM would. I would not sleep good banking everything on one good company.

CD currently are not keeping up with inflation, so your 1.5 is going to slowly shrink.
My CD's are insured at Penfed and depending the types of different accounts DH and I could have $750K or possibly more insured with them. I definitely will spread it around, but a higher percentage in any bank that has the highest rates at the time.

Deb
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Old 12-08-2013, 12:22 PM   #20
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I decent calculator for each CD can be found here CD Calculator
SoReady,

Thanks (and I identify with your username ) I will check out this site.

Deb
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