CD Ladder

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
BoggledHead2
Posts: 54
Joined: Tue Jun 12, 2018 6:50 pm

CD Ladder

Post by BoggledHead2 » Fri Sep 21, 2018 8:20 am

Considering a CD ladder of 100K (25K in various lengths)

Is a CD ladder simply opening a 25K CD for 6 mo, another for 12 mo, another for 18 mo ... or is there more complexity to it that I’m missing?

stan1
Posts: 6087
Joined: Mon Oct 08, 2007 4:35 pm

Re: CD Ladder

Post by stan1 » Fri Sep 21, 2018 8:45 am

A $100K CD ladder looks like this:
$20K in a 5 year CD coming due in 2018
$20K in a 5 year CD coming due in 2019
$20K in a 5 year CD coming due in 2020
$20K in a 5 year CD coming due in 2021
$20K in a 5 year CD coming due in 2022

To start that with $100K today you'd open a 1 year CD with $20K, a 2 year CD with $20K, a 3 year CD with $20K, a 4 year CD with $20K, and a 5 year CD with $20K. Then as they expire each rolls into a 5 year CD. CD ladders are a long term strategy.

Codyo32
Posts: 2
Joined: Sat Aug 11, 2018 8:46 pm

Re: CD Ladder

Post by Codyo32 » Fri Sep 21, 2018 8:51 am

Hello,

That is correct. That way the capital is becoming liquid at different times so you aren't locked in for one long time frame. Then you can reinvest into another CD as each expires. Takes a few hours of maintenance a month. However, there is an argument to park the cash in a high interest saving account such AMEX for a %1.75 apy and your cash remains liquid.

dpm321
Posts: 68
Joined: Sun Mar 04, 2012 6:04 pm

Re: CD Ladder

Post by dpm321 » Fri Sep 21, 2018 5:17 pm

The CDs do not have to be in 1 year durations. They can be in any duration (6 months, 12 months, 18 months, etc.). They just need to be sequential.

User avatar
EyeYield
Posts: 648
Joined: Tue Sep 18, 2012 6:43 pm
Location: Extremistan

Re: CD Ladder

Post by EyeYield » Fri Sep 21, 2018 6:11 pm

You’re not missing anything, just pick your durations and select whether you want them to automatically roll over or not.

Here are a few examples:
https://fixedincome.fidelity.com/ftgw/f ... -new-issue
"The stock market is a giant distraction from the business of investing." - Jack Bogle

User avatar
patrick013
Posts: 2430
Joined: Mon Jul 13, 2015 7:49 pm

Re: CD Ladder

Post by patrick013 » Sat Sep 22, 2018 1:58 pm

BoggledHead2 wrote:
Fri Sep 21, 2018 8:20 am
... or is there more complexity to it that I’m missing?
Bond ladders result in diversification that can eliminate
interest rate risk, provide periodic liquidity, and predictable
cash flows. Laddering CD's or bonds provides a hedge
against interest rate risk.

As interest rates rise redemption proceeds are reinvested
at the longer term of the ladder at the higher yield within
the desired maturity range. Earning higher yields helps keep
an advantageous overall return. The portfolio's yield will
gradually increase as well as an increasing income stream.
CD ladders are very popular as 10 year treasury yields can
usually be realized with a 5 year CD. Either way bonds or
CD's are held to maturity so no realized gain or loss occurs.
3 to 5 year ladders are popular as well as zero coupon bond
ladders in a tax deferred account.

Investors are flexible to spend, buy longer terms if rates
peak, or buy stocks if rates decline when each bond matures.
age in bonds, buy-and-hold, 10 year business cycle

MathIsMyWayr
Posts: 226
Joined: Mon Mar 27, 2017 10:47 pm
Location: CA

Re: CD Ladder

Post by MathIsMyWayr » Sat Sep 22, 2018 2:13 pm

I bought a 3/6/9/12 months CD ladder at Fidelity. This is money for use soon. Now their interest rate is 2.1% for a 1-yr CD. I am considering a 1-year treasury bill (2.25%) for the soon maturing CD. I think it is close to 2.48% before CA state tax. After inflation and federal tax, I am losing the purchasing power, there appears not much I can do about it.
Last edited by MathIsMyWayr on Sat Sep 22, 2018 2:16 pm, edited 1 time in total.

Dottie57
Posts: 4806
Joined: Thu May 19, 2016 5:43 pm

Re: CD Ladder

Post by Dottie57 » Sat Sep 22, 2018 2:15 pm

MathIsMyWayr wrote:
Sat Sep 22, 2018 2:13 pm
I bought a 3/6/9/12 months CD ladder at Fidelity. This is money for use soon. Now their interest rate is 2.1% for a 1-yr CD. I am considering a 1-year treasury bill (2.25%) for the soon maturing CD. I think it is close to 2.48% before CA state tax.
I don’t think states can tax treasuries.

User avatar
Sandtrap
Posts: 5477
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii😀 Northern AZ.😳 Retired.

Re: CD Ladder

Post by Sandtrap » Sat Sep 22, 2018 2:16 pm

Also, be wary of the strict "window" for expiration/renewal/auto renew if the CD's are from "brick n mortar" or financial institutions vs brokered CD's. Brokered CD's roll over into the sweep account and do not "auto renew".
j

Post Reply