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question on CD ladders
Old 07-27-2008, 07:38 PM   #1
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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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Old 07-27-2008, 07:48 PM   #2
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Originally Posted by simple girl View Post
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?
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.....
Old 07-27-2008, 08:00 PM   #3
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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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Old 07-27-2008, 08:34 PM   #4
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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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Old 07-27-2008, 08:54 PM   #5
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Quote:
Originally Posted by simple girl View Post
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?
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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Old 07-27-2008, 09:16 PM   #6
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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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Old 07-28-2008, 06:46 AM   #7
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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.

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!
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Old 07-28-2008, 07:14 AM   #8
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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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Old 07-28-2008, 07:18 AM   #9
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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
Thanks, I will look into that, too!
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Old 07-28-2008, 09:14 AM   #10
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CD Thread, Post The Best Rates You Can Find Here!

Shows:

https://savings.eloan.com/savings

5 year @ 5.25%.
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Old 07-28-2008, 09:33 AM   #11
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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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Old 07-28-2008, 10:28 AM   #12
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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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Old 07-28-2008, 11:42 AM   #13
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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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