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]

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).