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07-27-2008, 06:38 PM
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#1
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Moderator
Join Date: Sep 2006
Posts: 4,029
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question on CD ladders
Several years ago we put together a CD ladder. One of our CD's is about to mature. It was a 2 yr CD and the rate was around 5%. According to how CD ladders work, we are supposed to now convert this to a 5 year, so that eventually we have rolling 5 year CD's.
Well, current rate on a 5 yr is 3.75%. Hard to lock in for 5 years at that rate. Yet, this is how CD ladders are supposed to work, right Should we just bite the bullet and transition it to a 5 year, or wait for rates to improve again?
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simple girl
less stuff, more time
(55, married; Mr. Simple Girl, 59. FIRED 12/31/19!)
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07-27-2008, 06:48 PM
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#2
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Moderator Emeritus
Join Date: Jan 2007
Location: New Orleans
Posts: 47,474
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Quote:
Originally Posted by simple girl
Several years ago we put together a CD ladder. One of our CD's is about to mature. It was a 2 yr CD and the rate was around 5%. According to how CD ladders work, we are supposed to now convert this to a 5 year, so that eventually we have rolling 5 year CD's.
Well, current rate on a 5 yr is 3.75%. Hard to lock in for 5 years at that rate. Yet, this is how CD ladders are supposed to work, right Should we just bite the bullet and transition it to a 5 year, or wait for rates to improve again?
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I think that is how they are supposed to work, yes. I guess the idea is that your overall rate is the result of the rates of all the different CD's in your ladder. So, it's not going to decrease the overall rate as much as it seems. So, as an impartial observer I would say to go ahead and bite the bullet.
Now if it was mine, I would probably be asking the same questions. It's a tough call, but probably you should do it. It's better than a 2% money market rate, or less than 1% in some FDIC insured savings accounts at banks.
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From a previous thread.....
07-27-2008, 07:00 PM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2006
Posts: 11,401
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From a previous thread.....
http://www.early-retirement.org/foru...ase-36574.html
Although not specifically discussed on the older thread, one way to deal with low prevailing interest rates at maturity would be to buy a shorter term CD (e.g. 1 year) with the proceeds of the maturing one, in the hope that next year, rates would be up when it matured. Then you could lock those rates in for the remainder of the 5 years.
Of course, rates could still go down.....
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07-27-2008, 07:34 PM
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#4
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Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 1,183
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Simple Girl, You might want to check here daily to see what is available http://www.bankingmyway.com/
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07-27-2008, 07:54 PM
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#5
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2007
Posts: 5,596
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Quote:
Originally Posted by simple girl
Several years ago we put together a CD ladder. One of our CD's is about to mature. It was a 2 yr CD and the rate was around 5%. According to how CD ladders work, we are supposed to now convert this to a 5 year, so that eventually we have rolling 5 year CD's.
Well, current rate on a 5 yr is 3.75%. Hard to lock in for 5 years at that rate. Yet, this is how CD ladders are supposed to work, right Should we just bite the bullet and transition it to a 5 year, or wait for rates to improve again?
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You can get 4.6% on a 5 year CD at Pentagon Federal Credit Union (www.penfed.org). For a nominal fee ($13) you can gain membership by joining a military support organization if you are not otherwise in their traditional field of membership as defined by federal regulations. Pentagon Federal Credit Union is fully insured by the National Credit Union Administration (NCUA) which is comparable to the Federal Deposit Insurance Corporation (FDIC). Both are backed by the US government - the primary difference is NCUA covers federally insured credit unions and FDIC covers banks.
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I purr therefore I am.
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07-27-2008, 08:16 PM
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#6
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Recycles dryer sheets
Join Date: Mar 2007
Posts: 149
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Simplegirl, I just checked Bankrate.com and there are several 5 year CD's yielding 5% APR or slightly over. These are with banks rated 4 or 5 stars out of a possible 5 stars for soundness.
I have a PenFed credit card and love the cash rebates.
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07-28-2008, 05:46 AM
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#7
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Moderator
Join Date: Sep 2006
Posts: 4,029
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Quote:
Originally Posted by Purron
You can get 4.6% on a 5 year CD at Pentagon Federal Credit Union (www.penfed.org). For a nominal fee ($13) you can gain membership by joining a military support organization if you are not otherwise in their traditional field of membership as defined by federal regulations. Pentagon Federal Credit Union is fully insured by the National Credit Union Administration (NCUA) which is comparable to the Federal Deposit Insurance Corporation (FDIC). Both are backed by the US government - the primary difference is NCUA covers federally insured credit unions and FDIC covers banks.
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Thanks everyone. I do have 2 CD's with Pen Fed already, however I hadn't taken the time to look into their current rates yet. I had just looked at the rates for rolling it over with our original bank. Thanks for bringing that to my attention!
__________________
simple girl
less stuff, more time
(55, married; Mr. Simple Girl, 59. FIRED 12/31/19!)
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07-28-2008, 06:14 AM
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#8
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Thinks s/he gets paid by the post
Join Date: Jun 2006
Location: Central, Ohio, USA
Posts: 2,635
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5% APY here at Capital One 5 Year - higher rates for longer periods. Optionally, at Capital One, you can either reinvest interest or have it paid to you monthly. Also the penalty at Capital One on long term CD is 6 month interest vs PFCU's 12 month penalty. I have CD's a PFCU and Capital One among others.
BTW my personal ladder goes out about 7 years, mainly because of Capital One having 7 and 10 year CD's.
Also, I do not know what the terms are at your bank but if it has been within their allowed period to withdraw without penalty you may want to move the money (or alternatively ask them to match the Capital One rate; answer will probably no but you will not know until you ask the question).
Capital One Direct Banking: Certificates of Deposit - Rates
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Vietnam Veteran, CW4 USA, Retired 1979
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07-28-2008, 06:18 AM
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#9
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Moderator
Join Date: Sep 2006
Posts: 4,029
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Quote:
Originally Posted by OAG
5% APY here at Capital One 5 Year - higher rates for longer periods. Optionally, at Capital One, you can either reinvest interest or have it paid to you monthly. Also the penalty at Capital One on long term CD is 6 month interest vs PFCU's 12 month penalty. I have CD's a PFCU and Capital One among others.
BTW my personal ladder goes out about 7 years, mainly because of Capital One having 7 and 10 year CD's.
Also, I do not know what the terms are at your bank but if it has been within their allowed period to withdraw without penalty you may want to move the money (or alternatively ask them to match the Capital One rate; answer will probably no but you will not know until you ask the question).
Capital One Direct Banking: Certificates of Deposit - Rates
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Thanks, I will look into that, too!
__________________
simple girl
less stuff, more time
(55, married; Mr. Simple Girl, 59. FIRED 12/31/19!)
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07-28-2008, 08:14 AM
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#10
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,708
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Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
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07-28-2008, 08:33 AM
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#11
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Full time employment: Posting here.
Join Date: May 2008
Posts: 546
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On a more generic note about the CD ladder, I would generally shop around for the best APY and bite the bullet. Again, there is no reason to presume that they can't go down any further, and your effective APY on all of your money is just the average of all of your CDs. Thus, as you are setting up your CD ladder, when next year's expires, if the rates go up, you can roll it into a better APY. True, if you had waited on the other funds, you would have a better APY, but you miss one year of better than average returns and have no guarantee that they will go up.
By the way, I do think they are going to go up by 6-8 months from now.
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07-28-2008, 09:28 AM
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#12
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Recycles dryer sheets
Join Date: Nov 2003
Location: Charlotte
Posts: 360
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We have a Vanguard brokerage account to facilitate buying brokered CDs. 5 year CDs there are currently around 5%.
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07-28-2008, 10:42 AM
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#13
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Recycles dryer sheets
Join Date: Mar 2007
Posts: 319
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I go to BankRate.com when ever I need at get a CD. They rate the bank as well which is nice considering your $ will be sitting their for 5 years.
http://bankrate.com/brm/rate/high_ra...duct=19&sort=2
Best current rate is 5.12% apy @ Discover Bank.
Have fun!
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