topic Re: CD Laddering in Personal Finance

CD Laddering

Brian_Earl_Spilner — Tue, 12 May 2020 04:21:53 GMT

Anyone do them, and if so, with whom? I've been shopping for the best rates cause I'm bored. My current FIs are Chase, SDCCU, NFCU, Wings, DCU, and Schwab.

While I don't plan to touch the money, shorter intervals would be nice in case an emergency (ahem, pandemic) were to occur. I'd like to do a 3-5 year ladder. Automation would be a nice feature also.

Thanks.

Re: CD Laddering

M_Smart007 — Tue, 12 May 2020 04:46:56 GMT

This would be the only CD I would open right now, with rates as low as they are,

Taxes and inflation will eat away like moths eat old clothes.

NFCU

Personally I prefer Gold over CD's ...

Hard to argue with 30% in one year and 16% in 6 months.

Re: CD Laddering

Brian_Earl_Spilner — Tue, 12 May 2020 05:15:31 GMT

@M_Smart007 wrote:
This would be the only CD I would open right now, with rates as low as they are,
Taxes and inflation will eat away like moths eat old clothes.

NFCU

Personally I prefer Gold over CD's ...
Hard to argue with 30% in one year and 16% in 6 months.

Yeah, I was going to dump the max 3k in the Navy cd. One of the reasons I'm more interested in the shorter terms is if they continue to drop, I can bail.

I already have money in precious metals. As long as the market tumbles, they'll keep going up, but once the market corrects, they'll fall. But I don't see that happening any time soon, so I'll probably move more money into gold and silver for the time being.

Re: CD Laddering

redpat — Tue, 12 May 2020 06:54:15 GMT

I dumped getting interest income years ago and only invest to get dividends. Why get taxed at ordinary tax rates when I can get taxed at 15%. I only keep enough cash in savings one year of living expenses.

My dividends get reinvested and compound faster than any CD or savings account with a lower tax rate.

Cash is dead money after tax, especially in this low rate environment.

I just bought some MO 9% and FHN 7% div yields today. Looking at some more WFC 8%, JPM 4% and T 7% on lower dips. When the crash happened in March there were great opportunities of a lifetime PFE, BMY, ABBV, BAC, AIG, USB,PPL ,PNC, WFC, WBS and JPM to name a few.

Do your homework and research and you can do better with extra cash in the long run than just CDs

Re: CD Laddering

iced — Tue, 12 May 2020 15:28:57 GMT

@redpat wrote:
I dumped getting interest income years ago and only invest to get dividends. Why get taxed at ordinary tax rates when I can get taxed at 15%. I only keep enough cash in savings one year of living expenses.

My dividends get reinvested and compound faster than any CD or savings account with a lower tax rate.

Seconded. Dividends are the way to go, even for medium-term.

Savings/CDs are great for short-term and emergency savings. Beyond that, it's dead weight in the current market with rates in the toilet (and probably will be for the forseeable future). I'd add that most good dividend stocks also have annual increases to keep ahead of inflation.

Looking at my 2020 projections, I'd say my dividend:interest income ratio is somewhere around 50:1.

Re: CD Laddering

MakingProgress — Tue, 12 May 2020 15:58:34 GMT

I started a ladder 2 years ago with 5 CDs set to mature at 1 year intervals with Cap One.

At the end of year one it was great my first CD matured and I renewed for 5 years with a better rate than my 5 year (4 years left).

At the end of the second year the best rate I could get was for a 12 month so I renewed for a 12 month term. So at the end of year 3 I will have 2 of my 5 hitting maturity and I can revaluate what I want to do.

The cash I keep in these CDs is what I consider my backup emergency fund. I have cash in checking/money market that is my primary emergecy fund. Cap One's early withdrawl penelty is 3 months interest for a term of 12 months or less, or 6 months interest for a term of longer than 12 months. Since I am past 6 months on my initial invenstments and am letting the interest compound if I do have to cash in any of them I will not touch principal.

Re: CD Laddering

Duke_Nukem — Tue, 12 May 2020 16:09:35 GMT

About the NFCU Special CD rate, they are currently running a military appreciation promo that gives you $25 to open special CD @ 3.5%. My DD's have their savings in Ally and Disco, and I've been encouraging them to move some of their money into this CD. Well, Ally sent out an email notice yesterday stating they are lowering their savings to 1.25% today... so the move to NFCU has begun!

Be aware that to receive that 3.5% rate, a checking account and direct deposit is required.

Now, I've seen @iced and others mention dividends before. I'm curious about this and want to read up about these investment strategies. Can you guys point me (and others) to some areas to read/watch/learn from and dividend investments? TIA!

Re: CD Laddering

iced — Tue, 12 May 2020 16:57:34 GMT

@Duke_Nukem wrote:

Now, I've seen @iced and others mention dividends before. I'm curious about this and want to read up about these investment strategies. Can you guys point me (and others) to some areas to read/watch/learn from and dividend investments? TIA!

As a concept, dividend stocks are pretty basic. Most dividend stocks pay a quarterly dividend, and if your holdings are with a major brokerage it's just a drop of cash into your core position when they pay. Each quarter, a company announces a dividend payment, which is what each shareholder will be paid per share of stock. So, if a company announces a 0.52 dividend to be paid on 6/1, and you have 100 shares of that stock, you'll see a payment of $52 in your brokerage account on 6/1. Multiply that by 4 for the typical year, meaning that you'll get $2.08 in dividends per share of stock. If you bought that stock at $30/share, that means your "principal" (amount invested) is $3,000 and you got $208 in dividends after one year. That's almost a 7% dividend in this example. Provided the stock price hasn't fluctuated too horribly, you can also sell that stock at any time and pocket those gains (or losses).

The "strategy" is picking "blue chip" stocks, which are companies that are very stable and have consistently paid dividends every year for decades. This helps minimize the risk of the company halting dividend payments and is a sign of a company that's stable enough not to go under any time soon. All about risk there. The general idea is to pick stocks that won't necessarily go up a lot, but won't go down a lot either and just pay consistently, year after year. You're not investing in them to triple your position in them; you're investing to derive passive income off the dividends. If you also happen to land a company that has growth potential, double bonus.

Compounding in this case is dividend re-investment. Instead of taking the cash, you buy more stock of the same company with the dividends. More shares = more dividends.

Which stocks to buy is a more hotly contested and subjective question. I don't usually take advice from the advisor sites like Motley Fool or Seeking Alpha. They're wrong just as often as they're right. I tend to look toward general sites like Financial Samurai or Investopedia, but they're more explaining the concepts than giving tips.

Re: CD Laddering

Brian_Earl_Spilner — Tue, 12 May 2020 17:01:13 GMT

I understand the rates are bad right now. This is for my emergency savings and will not be invested. I just want a better return than them sitting in a 0.01% savings account. I've used MMAs in the past, but want a greater return.

The thing was, I wanted to stay as liquid as possible in the past. At this point, I have enough that I'm ok to lock some away.

Re: CD Laddering

iced — Tue, 12 May 2020 17:08:22 GMT

@Brian_Earl_Spilner wrote:
I understand the rates are bad right now. This is for my emergency savings and will not be invested. I just want a better return than them sitting in a 0.01% savings account. I've used MMAs in the past, but want a greater return.

The thing was, I wanted to stay as liquid as possible in the past. At this point, I have enough that I'm ok to lock some away.

I think for something like emergency, you're going to be talking differences from the best rates to good rates of less than 0.5% -- which is also where savings rates are. For $50,000 in savings, the difference of 0.5% is only $250/year. I'd say until the fed starts shooting rates back up, the difference in parking savings/CDs at 2% versus 1.5% is pretty insignificant, and I'd instead go with a bank that has at least decent rates (1.5% is a good base) and is one you like/trust.

If liquidity is paramount, I'd skip CDs and go back to savings. The difference in rates isn't all that large right now - usually around 0.1% more for CD than savings.

Re: CD Laddering

Brian_Earl_Spilner — Tue, 12 May 2020 17:22:28 GMT

@iced wrote:
@Brian_Earl_Spilner wrote:
I understand the rates are bad right now. This is for my emergency savings and will not be invested. I just want a better return than them sitting in a 0.01% savings account. I've used MMAs in the past, but want a greater return.

The thing was, I wanted to stay as liquid as possible in the past. At this point, I have enough that I'm ok to lock some away.
I think for something like emergency, you're going to be talking differences from the best rates to good rates of less than 0.5% -- which is also where savings rates are. For $50,000 in savings, the difference of 0.5% is only $250/year. I'd say until the fed starts shooting rates back up, the difference in parking savings/CDs at 2% versus 1.5% is pretty insignificant, and I'd instead go with a bank that has at least decent rates (1.5% is a good base) and is one you like/trust.

If liquidity is paramount, I'd skip CDs and go back to savings. The difference in rates isn't all that large right now - usually around 0.1% more for CD than savings.

My interest rates with my FIs are nowhere near the rates of CDs right now.

Re: CD Laddering

Anonymous — Tue, 12 May 2020 17:59:17 GMT

I have the easy start cert that @M_Smart007 mentioned, and it just rolled over a couple months ago. I never got around to putting much in there becuse it slipped my mind TBH, and I too like to stay relatively liquid. If you have the $3K to park, I'd recommend it.

As for liquidity ther are several HYSA at better than regular savings rates, so it doesn't hurt to have some parked there as well.

I'm still considering CD's if i can find a good rate, hopefully better thanI'm currently getting a HYSA. Though I'm also still waiting til I decide to through with a Mortgage before I lock up anymore funds.

Re: CD Laddering

iced — Tue, 12 May 2020 18:10:04 GMT

@Brian_Earl_Spilner wrote:
My interest rates with my FIs are nowhere near the rates of CDs right now.

The usual suspects (Discover, American Express, Barclays, etc) offer savings accounts with ~1.5% interest with no limitations or minimums. The majors like Chase/BoA are still stuck in 0.1% mode because they just aren't interested in holding money from savings. It's basically a deterrent rant on their part.

Re: CD Laddering

calyx — Thu, 14 May 2020 18:44:35 GMT

I have a CD ladder with Cap1, started it quite some time ago, so it's settled for now, and just rolling.
I'm like you - it's not for investing or anything crazy, just for my emergency savings at a slightly better rate.

IIRC, Cap1 didn't give me the absolute highest rates I could get, but their early redemption was a lot more lenient than most places, which I was more interested in since it was for my e-fund, and by nature could be yoinked at a moment's notice.

Sure, the rates aren't spectacular or anything, but I'll take any pennies gained.

Re: CD Laddering

Revelate — Fri, 15 May 2020 03:07:42 GMT

@IOBA queen of the CD ladders I summon thee!

(if you still are even around)

Re: CD Laddering

Anonymous — Fri, 15 May 2020 18:19:56 GMT

Unfortunately both Amex and Disco took another hit, 1.30% and 1.25%, so i just went and moved 2/3 from Disco to NFCU. Amex I'll leave a little while longer, but if teh lower it again will haev to look elsewhere and possibly locking it up with CD's.

Re: CD Laddering

M_Smart007 — Fri, 15 May 2020 18:36:00 GMT

@Anonymous wrote:
Unfortunately both Amex and Disco took another hit, 1.30% and 1.25%, so i just went and moved 2/3 from Disco to NFCU. Amex I'll leave a little while longer, but if teh lower it again will haev to look elsewhere and possibly locking it up with CD's.

@Anonymous, I have been seing the hits.

This one has held up the best for me (so far)

I just can't see locking money up in low rate CD's right now, the time to do that was when rates were higher.

Re: CD Laddering

Brian_Earl_Spilner — Fri, 15 May 2020 18:41:59 GMT

@M_Smart007 wrote:
@Anonymous wrote:
Unfortunately both Amex and Disco took another hit, 1.30% and 1.25%, so i just went and moved 2/3 from Disco to NFCU. Amex I'll leave a little while longer, but if teh lower it again will haev to look elsewhere and possibly locking it up with CD's.
@Anonymous, I have been seing the hits.
This one has held up the best for me (so far)

I just can't see locking money up in low rate CD's right now, the time to do that was when rates were higher.

If you have a savings or checking with that kind of rate, it makes more sense to keep the money liquid. But if you're getting 0.01 - 0.60%, locking it up can make sense if the money isn't needed.

Re: CD Laddering

calyx — Fri, 15 May 2020 18:57:52 GMT

@M_Smart007 wrote:
@Anonymous wrote:
Unfortunately both Amex and Disco took another hit, 1.30% and 1.25%, so i just went and moved 2/3 from Disco to NFCU. Amex I'll leave a little while longer, but if teh lower it again will haev to look elsewhere and possibly locking it up with CD's.
@Anonymous, I have been seing the hits.
This one has held up the best for me (so far)

I just can't see locking money up in low rate CD's right now, the time to do that was when rates were higher.

Yeah, I'm SUPER glad I finished up my ladders last year - I'd hate to start a ladder now.
My next roll over is in December, I'll probably just move it to savings if things are still low then (I'm sure they will be).

(and for the record, my best rate right now is Citi @ 1.55% for savings, which beats all of C1's rates)

Re: CD Laddering

Anonymous — Fri, 15 May 2020 21:52:52 GMT

Yeah, but to get that 1.55% you have to have a $20K minimum deposit, some of us don't put quite that much in. Especially in one account.

Citi has been trying lure me in with that rate, as well as earning an extra .50% on my DC card.

Unfortunately I burned HSBC back in 04, so I'm not exaclty ready to test those waters yet.

I didn't realize CD rates weer that low, I thought I had seen one closer to 2% or higher.