Author Topic: CD Ladder Advice & Newbie Questions  (Read 2907 times)

CryingInThePool

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CD Ladder Advice & Newbie Questions
« on: June 23, 2017, 03:58:16 PM »
So I'd finally decided to get going with a CD Ladder for first few years of FIRE and thought it was going to be simple.  That was before I realized Vanguard only sells Brokered CDs;  I hadn't realized there was more than one type. How naive of me I know. 

Basically a few beginner questions and please feel free to redirect me though I did try a forum search before posting. 

1) Bank or Broker CD?  I believe for the purpose of a CD ladder to protect against volatility that answer has to be Bank but would like to confirm.

2) All the reviews at bankrate for CDs from banks I've never heard of seem pretty poor.  Do I care that much about CS in this scenario? I can't tell.  Just go with the best rate? Or is it better to try for a local/regional bank?

3) Is there a strategy for timing the ladder that's best?  I was looking now since I was targeting June as my FIRE month.  But maybe it's better to come around in April just in case of taxes?  Thinking out loud but curious what others have considered when  timing their ladder.

Thanks - CitP

CryingInThePool

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Re: CD Ladder Advice & Newbie Questions
« Reply #1 on: June 26, 2017, 09:19:46 AM »
Interesting.  I didn't realize the ladder was built in fractions that roll over from 1Y to 5Y.  What's the benefit to that? 

Seems like more paperwork and it requires you to have the cash all up front to divide into 5ths whereas my plan was just to buy a 5 year CD every year for 5 years.

Does that work OK too or am I missing something?




ixtap

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Re: CD Ladder Advice & Newbie Questions
« Reply #2 on: June 26, 2017, 01:56:52 PM »
Interesting.  I didn't realize the ladder was built in fractions that roll over from 1Y to 5Y.  What's the benefit to that? 

Seems like more paperwork and it requires you to have the cash all up front to divide into 5ths whereas my plan was just to buy a 5 year CD every year for 5 years.

Does that work OK too or am I missing something?

That works, as long as you have five years to go. If you only found out about the ladder when you are ready to retire, then you need more graduation. We are somewhere in the middle. We have been viewing retirement as a mythical five years away. That is, it has always been at least five years away for the last three years. This year, we are actually starting the countdown, and it could be as close as three years, two if the rumored recession never hits.

My husband's original plan was to buy a ladder every month. Once I pointed out that you get bet rates over longer periods and with bigger chunks of money, we got more realistic.

Now, we are leaning towards three years of building the ladder: Years one and two, we will buy a 5 year and a 3 year CD, year three, we will buy a five year CD.

moustache79

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Re: CD Ladder Advice & Newbie Questions
« Reply #3 on: June 28, 2017, 06:43:28 PM »
Check out depositrates.com for good info on this topic

talltexan

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Re: CD Ladder Advice & Newbie Questions
« Reply #4 on: July 06, 2017, 11:50:10 AM »
As an alternative, split your money 50-50 between 1 yr and the term that gets you the highest rate. Next year, you've got half of your money, and--if rates have increased a lot, you can do an early sunset (with some penalty) on the longer term and repeat.

Example: If my annual expenses will be $2,000, I put $2,000 in a 1-year, and $2,000 in a five year. Next year, my $2,000 1-year CD comes clear, and I've saved another year worth of expenses, so I do the same thing, building the back of the ladder with my new savings while rolling the initial 1-year CD forward another year. Two years from now, I've got $2,000 in new savings, $2,000 in money from the 1-year (plus $10 interest), and a nice rate locked in for either 3- or 4-year term.

talltexan

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Re: CD Ladder Advice & Newbie Questions
« Reply #5 on: July 06, 2017, 12:01:50 PM »
But if rates have spiked after year 1, I can take my 4-year CD down, paying some of my interest as a penalty, and re-establish it as a new five-year with a much higher interest rate.