question about CD laddering

[Keyboard Ninja]

When developing a CD ladder would I have to purchase all of my CD's at one bank? I've got $5,000 that I can use and would like to start some sort of ladder system. I've got the gist of it down I think:

$1000 1yr CD
$1000 2yr CD
$1000 3yr CD
$1000 4yr CD
$1000 5yr CD

When each CD matures I re-enroll them into a 5yr CD. I think I have that right? Can I use multiple banks?

[DallasGuy]

Yeah, you can use multiple banks. I ladder my CD's and when one comes due, I hunt around at other banks to find the best rate for my new CD.

[Keyboard Ninja]

What is the minimum someone should have when they start looking for CD's? I've read that putting money into a CD is useless until you have about $50,000 to play with. It was said that after taxes you wouldn't profit much anyways. Is there any truth to that?

[cute fuzzy bunny]

Depends. In many cases the best rates are for 10k and 25k+ cd's.

As far as profits...if you manage to get in at the peak rates during periods of high inflation just before inflation drops and remains low for a while, and you have the guts to go in big AND long, you might make a little money.

Otherwise you'll probably break even with inflation. Maybe a little less after taxes unless you're in a very low tax bracket.

This is where you hold your emergency money. Not where you make beaucoup bucks...

[jIMOh]

I have my emergency fund in a 90 day CD ladder which is 3 CDs which mature at 30 day intervals. Good way to prevent money from being spent from savings account and some of money is accessible for 10 days every 30 days.

[Keyboard Ninja]

Originally Posted by cute fuzzy bunny

As far as profits...if you manage to get in at the peak rates during periods of high inflation just before inflation drops and remains low for a while, and you have the guts to go in big AND long, you might make a little money.

Otherwise you'll probably break even with inflation. Maybe a little less after taxes unless you're in a very low tax bracket.

This is where you hold your emergency money. Not where you make beaucoup bucks...

Hmm...I thought that was what a high yield savings account was for. To be able to earn interest over the entire amount of cash you do have, and to keep it liquid. Am I thinking of this all wrong?

[cute fuzzy bunny]

The majority of cd's are perfectly liquid, usually requiring only an interest penalty dependent on how long the cd is. Thats why its a good idea to keep them at the minimum $ required to get the desired interest rate so you can 'break' one if needed and not take a big hit.

Its different for everyones needs, but for emergency cash that you'll really only need in an emergency, you can put the money into a bunch of ~5% cd's and only break one if you need it. Much better than the 2-3% you'll get in a savings account.

[OAG]

They are very liquid and as CFB says keep the amounts small (I currently "manage" 55 CD's on an Excel spreadsheet.). Spread them out among your creditors (use 2 banks and 3 CU, currently). Look into the "penalty" provisions; one of my banks charge 6 months interest penalty regardless of length of the CD while others charge a year. Also some (mostly CU's) will give you a "loan" of the funds for some percentage above your deposit. An example is PenFed who will give you a loan for 90% of the CD's value for 2% over the CD's rate -- and you do not even have to make payments on the "loan" until maturity of the respective CD -- and you can still keep the ongoing interest earnings. Very good deal (although you are borrowing your own money).