Author Topic: whats the use for CD Ladders these days?  (Read 1964 times)

texxan1

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whats the use for CD Ladders these days?
« on: November 30, 2020, 06:50:20 AM »
ive used the search bar to no avail lol... So going to ask this question again.

About to fire in the next few months, no going back, papers are signed....

I know that CD ladders are good ways to invest in the past, when you could get 5 to 7 percent and such.. but with the highest im seeing right now is like less than 1% for 3 month to 1 year...

So if i put 200k into CD ladders, im gonna make less than 2k..... for that, i would just keep my money in  my checking account.

OR am i missing something


Thanks
Tex

ender

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Re: whats the use for CD Ladders these days?
« Reply #1 on: November 30, 2020, 06:57:00 AM »
You're not missing much.

I guess in a CD it's locked up a bit more than if it's just in your checking, if that matters to you.

reeshau

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Re: whats the use for CD Ladders these days?
« Reply #2 on: November 30, 2020, 07:32:08 AM »
I've been letting my CD's expire and go into my money market.  Not worth locking up for a pittance.  Waiting for come kind of rise in rates, and I'll rebuild the ladder.  Bonus:  if Covid waves beat vaccine news and March happens again, I'll be that much more ready to strike.

vand

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Re: whats the use for CD Ladders these days?
« Reply #3 on: November 30, 2020, 07:40:09 AM »
Did someone say CD ladder?



Nope, can't think of much use for one either.

Boll weevil

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Re: whats the use for CD Ladders these days?
« Reply #4 on: November 30, 2020, 09:36:45 AM »
As investment, not much.

However, I think they still pay out a little more than savings accounts do.

I have mini ladder/carousel as part of an emergency fund: 2 6 month CDs, each with about 3 months worth of expenses

BNgarden

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Re: whats the use for CD Ladders these days?
« Reply #5 on: November 30, 2020, 10:34:53 AM »
I had a 5 year ladder of GCs, and am renewing it as they mature.  Because I don't know the future, have need of certain funds every year to supplement pensions / other investment incomes are more volatile; and the past 5 years show me that rates were even better then than now (about double to 2.5 times higher), which could also be the case going forward.

phildonnia

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Re: whats the use for CD Ladders these days?
« Reply #6 on: November 30, 2020, 11:20:16 AM »
...
I know that CD ladders are good ways to invest in the past, when you could get 5 to 7 percent and such.. but with the highest im seeing right now is like less than 1% for 3 month to 1 year...

So if i put 200k into CD ladders, im gonna make less than 2k..... for that, i would just keep my money in  my checking account.

OR am i missing something

One thing you may be missing: we are currently in a "rate inversion", which means that long-term rates are lower than short-term rates.  This means that while a CD rate may be comparable to your checking account, your checking account will soon have its interest rate dropped, whereas the CD is locked in for the term.

But you're missing something else, more important:

Deposit accounts are not, and have never been good investments.  You can ladder your CDs all you want, you're still losing out to inflation.  If you're going to keep lots of cash, higher interest is better than lower interest, but don't call it an "investments". 

CD ladder or no, the only reason you would keep a large amount of cash deposits is 1) You will need it in the next year, or 2) you get an irrational feeling of safety from it.  (And I don't mean to discount this second reason; I do it myself).  But in any case, it's not an investment.

Consider some alternatives that achieve the same purpose: Money Market Funds (e.g.: IUSXX) are comparable to CD rates, but with no penalty for withdrawing (within reason).

Also, if you have lots of cash and you're ok with all the hassle of setting up and organization required for laddering, consider "account bonus churning" instead, which can return up to 4%.
« Last Edit: November 30, 2020, 12:16:31 PM by phildonnia »

friedmmj

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Re: whats the use for CD Ladders these days?
« Reply #7 on: November 30, 2020, 11:59:21 AM »
Get a savings account at an online institution like Capital One or Ally Bank rather than leave it in checking at your mega bank.  At least you will earn 0.5% on the balance and you can use it to pay bills.

phildonnia

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Re: whats the use for CD Ladders these days?
« Reply #8 on: November 30, 2020, 12:10:06 PM »
If you're responding specifically to me, I didn't call them investments.  Also, I'm in Canada where the account rates are generally much worse than CDs (generally, for big banks) and I don't believe the churning works nearly as well here as in USA?

I was referring to the OP: "I know that CD ladders are good ways to invest in the past, when you could get 5 to 7 percent and such.. "  I fixed my original post to clarify whom I was responding to.

Of course, back when CDs paid 7%, we were running at 10 or 15 percent inflation, so ... no.

The idea that bank accounts are a good investment comes from the old days when that was really the only way for common folk to do anything with spare money.  There was no Etrade or Fidelity.   Even then, the point of a bank was to store money safely, not to create an income stream. 

But the dialogue in Mary Poppins  "You must put your tuppence in the bank, where it will earn interest!"  is the kind of thing that any responsible parent would have impressed on their children, and in much the same tone.  That mentality is stuck now, and we still see junk mail ads promising "24 times the national average" or something in interest.  Of course, 24 times crap is crap.
« Last Edit: November 30, 2020, 12:17:30 PM by phildonnia »

texxan1

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Re: whats the use for CD Ladders these days?
« Reply #9 on: November 30, 2020, 06:56:16 PM »
I am in no way keeping cash in the bank as in investment, but its there because i have plans for it in the Near future.. .but everywhere i loook, people are still talking about CD ladders etc etc.... i googled current rates and did the calculations and a few thousand bucks aint worth the effort on my 400k or so i will have in cash... i can make more of that buying and selling local items etc.....   but i wanted to ask the question, as im smart but new to this whole idea... So i asked, and pretty sure i was right in my first assumption.. Not worth it now, maybe later

joleran

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Re: whats the use for CD Ladders these days?
« Reply #10 on: November 30, 2020, 07:15:51 PM »
Holding cash is certainly an investment.  Maybe you're market-timing.  Maybe you're doing a bond tent but with cash for SORR.  Maybe you just need somewhere to hold funds you want to spend a couple months from now.

The idea is the same, even if it's not a very profitable investment - it's all about risk/reward.

Laura33

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Re: whats the use for CD Ladders these days?
« Reply #11 on: December 08, 2020, 09:43:53 AM »
Holding cash is certainly an investment.  Maybe you're market-timing.  Maybe you're doing a bond tent but with cash for SORR.  Maybe you just need somewhere to hold funds you want to spend a couple months from now.

The idea is the same, even if it's not a very profitable investment - it's all about risk/reward.

This.  You cannot look at one element of a portfolio in isolation and decide whether it makes sense.  You presumably want some of your money in some version of cash, where security is more important than return.  For that portion of your money, you can use CDs or savings accounts.*  CDs historically pay a little more than savings accounts, with the tradeoff being that you lock up your money for that period of time.  If you're retired and plan on annual withdrawals, you can predict when you need that money, so why not get that extra 0.5% or whatever it is over the savings account?  Because you're not just getting it this year, you're taking advantage of the delta for however long you decide to keep that accessible cash in CDs. 

*There are other options, like money market funds or individual bonds with a fixed payout date, but each of those has its own risks associated with it.

utaca

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Re: whats the use for CD Ladders these days?
« Reply #12 on: December 08, 2020, 10:12:03 AM »
CD ladder or no, the only reason you would keep a large amount of cash deposits is 1) You will need it in the next year, or 2) you get an irrational feeling of safety from it.  (And I don't mean to discount this second reason; I do it myself).  But in any case, it's not an investment.

I like this take a lot. Like you I pile a significant amount of cash in a HISA, knowing it's irrational. But you know what's even more irrational? Me selling off my portfolio when the market dips because I went all in and cannot tolerate that level of risk. Basically, I don't view cash as an investment but as an insurance policy.

texxan1

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Re: whats the use for CD Ladders these days?
« Reply #13 on: December 14, 2020, 06:56:03 AM »
and it is bascially that, an insurance policy with cash readily available for something..> What that something is, 100 acres of property in TN, building a house on some fancy island in my brides country.... or just safety net for SORR.

My cash on hand is Not calculated as part of my LNW.... its just cash

some of it will definately be spend on our very small wedding, some will be spent on her a used car etc etc..... the rest.. >Safety net lol

NorCal

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Re: whats the use for CD Ladders these days?
« Reply #14 on: December 14, 2020, 08:01:07 AM »
There is a variation of CD/bond ladders that can be incredibly useful during your drawdown phase.  I plan to use this.

Buy bonds directly that mature in every year over the next five year.  This should cover your spending needs in those years. 

You can add another year of bonds if the market is doing well.  You can run it down to 1-2 years of bonds if the market is not doing well.  This has two main benefits:

1. You can avoid drawing down your stock portfolio during market drawdowns, significantly reducing portfolio risk.
2. You can safely keep the remainder of your portfolio in equities due to the decreased risk above. 

I had an MBA professor that did an academic study on this, and even wrote a book about it.  It showed a similar or slightly better risk/reward profile to traditional portfolios with a mix of stock and bond funds.

billy

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Re: whats the use for CD Ladders these days?
« Reply #15 on: December 14, 2020, 08:03:32 AM »
Ya, I had the same Q with bonds earlier, it is what it is. I still have bonds, jus doing less, I'm skipping the CD's. +1 for online savings, Varo bank looks interesting with 0.81%, right now my Ally savings is 0.50%. Also +1 bank account churning.

Wiki for the win...When life gives you lemons, make lemonade is a proverbial phrase used to encourage optimism and a positive can-do attitude in the face of adversity or misfortune. Lemons suggest sourness or difficulty in life; making lemonade is turning them into something positive or desirable.

My lady jus got some lemons for free too :>

John Galt incarnate!

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Re: whats the use for CD Ladders these days?
« Reply #16 on: December 14, 2020, 11:27:37 AM »

I like this take a lot. Like you I pile a significant amount of cash in a HISA, knowing it's irrational. But you know what's even more irrational? Me selling off my portfolio when the market dips because I went all in and cannot tolerate that level of risk. Basically, I don't view cash as an investment but as an insurance policy.

Rational agents always seek to maximize their satisfaction.

Investing/saving such that they are  an "insurance policy" that minimizes  risk and provides peace of mind is not irrational for the reason that peace of mind contributes to the maximization of satisfaction.

« Last Edit: December 14, 2020, 11:33:40 AM by John Galt incarnate! »