CD Laddering

[Brian_Earl_Spilner]

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.

[M_Smart007]

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.

[Brian_Earl_Spilner]

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@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.

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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.

[redpat]

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

[iced]

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@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.

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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.

[MakingProgress]

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. 

[Duke_Nukem]

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!

[iced]

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@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!

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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.

[Brian_Earl_Spilner]

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.

[iced]

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@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.

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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.