Bond fund vs 5 year cd ladder

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Jobseeker2013
Posts: 31
Joined: Wed May 11, 2022 5:47 pm

Bond fund vs 5 year cd ladder

Post by Jobseeker2013 »

How is the return on a 5 year CD ladder compared to a total bond fund? The 5 year CDs mature every year and a new 5 year one is bought every year from a bank or credit union. I am assuming I can not find this information because the CD market is inefficient as certain banks and credit unions have way higher rates than others. Has there been any analysis done?
hudson
Posts: 5665
Joined: Fri Apr 06, 2007 9:15 am

Re: Bond fund vs 5 year cd ladder

Post by hudson »

Jobseeker2013 wrote: Thu Aug 04, 2022 6:15 pm How is the return on a 5 year CD ladder compared to a total bond fund? The 5 year CDs mature every year and a new 5 year one is bought every year from a bank or credit union. I am assuming I can not find this information because the CD market is inefficient as certain banks and credit unions have way higher rates than others. Has there been any analysis done?
I don't like ladders. I'd rather lock in good rates if available. Penfed is paying 3.2% on 5 year CDs. Capital One is paying 3.4% on a non-callable brokered CD. I didn't look at treasury rates. I prefer CDs and treasuries over total bond because they are safer.
dbr
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Joined: Sun Mar 04, 2007 9:50 am

Re: Bond fund vs 5 year cd ladder

Post by dbr »

I don't know if a historical tabulation of CD ladder yields exists somewhere. You have already identified how variable CD rates can be and at the same time such rates vary over time. There is no such thing a THE return on a CD ladder.

There is also no such thing as THE return on a bond fund. It varies across any particular intervals of time. In the case of a bond fund for which you have a ticker symbol you could use Portfolio Visualizer to check some different time intervals to see what is there.

I think all in all five year CDs and intermediate term bonds funds of similar credit risk (that would be Treasuries compared to FDIC CDs) would be in the same ball park and also have similar risk in terms of standard deviation of annual returns. Note CDs have return risk in the form of reinvestment risk even if an individual CD is risk free.

I don't think trying to decide between CD ladders and intermediate Treasury funds is a productive exercise. If the holding is for the long term, meaning in this case ten years or more there is not much to choose. If the holding is for a declining ladder spent down over five years there would be reason to use a ladder.
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quisp65
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Joined: Wed Apr 10, 2019 7:44 am
Location: San Diego CA

Re: Bond fund vs 5 year cd ladder

Post by quisp65 »

I think the fact that people can "shop for best rates" makes good comparison studies difficult. Everything I saw was just taking averages that CDs were offering and a "shopper of rates" can do much better. I hypothesized I could beat or equal BND (total bond) by shopping for CDs but I'm lazy and my CD phase didn't last long and I eventually decided to just gravitate my CDs to a VCIT/VGIT (int corp/treasury) combo.
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