Keeping cash in a CD ladder

[Anonymous]

We have about $100k it cash on hand that we want to keep safe but get some return. We have other investments but want this as our safe money

Thinking about doing a CD ladder over 5 years- $20k for 1 year, $20k for 2 years etc..

Any better ideas on guaranteed returns for our cash?

[Anonymous]

That's a lot of dough to park for 5 years, but I'll accept the premise. If the guaranteed return and safety of the principal is required, the ladder is a solid strategy. You won't find a better alternative, given those requirements.

[Anonymous]

considering we are in a market peak and rates may be rising sooner than later not a bad idea.

[Anonymous]

Anonymous wrote:considering we are in a market peak and rates may be rising sooner than later not a bad idea.

Taking your claim as given, a better idea would be to use it all to fund a short position on equities. Which I'm sure is what you're doing, right?

[Anonymous]

If you really think the rates will go up you might want to do a shorter ladder (like $25/yr for 4 years). Also depends what rates you can get--sometimes there's a better rate if you put in more than $20k.

[Anonymous]

I wouldn't ladder right now with rates continuing to rise. I would just start with a short term and then when rates climb, you can revisit.

[Anonymous]

I’d stick 20k in I bonds, 20-25k in a high yield savings or rewards checking account, and the rest in an Ally CD, 12 months @ 2.5%. In January, I’d move the 20k from savings to another ibond purchase, 25k if you don’t mind doing the tax refund trick. Re-evaluate interest rate options when the 12 month CD comes due.

Or, if you just want set and forget, do 20k in I Bonds, then 20k in a weekly 4 week T bill ladder. Set it to automatically rollover with interest shunted to a high yield savings account. Every six months or so use the accumulated interest to buy another 4 week T Bill.

[Anonymous]

We have a CD ladder and have been happy with that approach, though we only have $25K in it. Not sure I'd put that much into CDs--is there a reason you need that much as safe money? We just have our six-month emergency fund there.

There are great rates on 1-year CDs right now, too (3% which is almost as good as you'll do on five-year CDs) so if you think rates are on the way up, I'd park money there for the moment and pull out as needed to put into longer-term CDs or other destinations.

[Anonymous]

Anyone care to explain this laddering concept?

[Anonymous]

Anonymous wrote:Anyone care to explain this laddering concept?

You divide your money into five buckets and put one bucket on a one-year CD, one in a two-year CD, one in a three-year, etc. so that as each CD matures, you can roll that money forward to a new five-year CD. Then you keep doing this continuously so that you have access to your money if needed but in theory it's getting higher interest rates than it would be sitting in a savings account. (That has only sometimes been true in the time we've had a CD ladder, but probably true on balance.)

I will say that we skipped the one- and two-year CDs when we started ours because the rates were so miserable for those, and put most of it in 3-, 4- and 5-year CDs. We have backfilled when there are occasional special rates on shorter-term CDs so now we are pretty close to having it evenly divided, though.

[Anonymous]

Anonymous wrote:We have about $100k it cash on hand that we want to keep safe but get some return. We have other investments but want this as our safe money

Thinking about doing a CD ladder over 5 years- $20k for 1 year, $20k for 2 years etc..

Any better ideas on guaranteed returns for our cash?

If you are concerned with market risk, I would throw it at a mortgage.

Other options would be Ibonds ($10k per person per year limit) or just buy a slug of Vanguard's total bond market (or muni bonds if you are in a high tax bracket). There's a small market risk with total bond but it's pretty miniscule and will give you better rates than the CDs.

[Anonymous]

Laddering sounds like a giant pain. Why not just put it all in a money market fund? I can't imagine you'll earn much, if any more, doing the laddering.

[Anonymous]

Anonymous wrote:Laddering sounds like a giant pain. Why not just put it all in a money market fund? I can't imagine you'll earn much, if any more, doing the laddering.

Five-year CD rates are considerably higher than money market rates for the most part. (We keep cash in both places, in part because the money market funds are far more accessible.) Bonds are also a reasonable option but their rates aren't fixed, and overall over the last 10 years, I think we did better having funds in CDs vs. I bond rates (3% yield on average). That may not hold true for the next ten years, though.

It's a little work to set up on the front end, but after that it's just a matter of deciding what you want to do with the money as each CD matures. We try to start ours all in the same month so that every year in March, we figure out if we want to roll them over or put the cash somewhere different. I can't deal with having a million different CDs in different places so we keep most with our credit union (which generally has pretty competitive rates) and at any given point may have a set at one or two other banks. Our credit union has a program where you can take short-term loans using the CD as collateral, which we have done a couple of times for short-term cash needs, so that's a benefit too.

[Anonymous]

Anonymous wrote:I wouldn't ladder right now with rates continuing to rise. I would just start with a short term and then when rates climb, you can revisit.

Rising rates will stop within a year. Watch.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Anyone care to explain this laddering concept?

You divide your money into five buckets and put one bucket on a one-year CD, one in a two-year CD, one in a three-year, etc. so that as each CD matures, you can roll that money forward to a new five-year CD. Then you keep doing this continuously so that you have access to your money if needed but in theory it's getting higher interest rates than it would be sitting in a savings account. (That has only sometimes been true in the time we've had a CD ladder, but probably true on balance.)

I will say that we skipped the one- and two-year CDs when we started ours because the rates were so miserable for those, and put most of it in 3-, 4- and 5-year CDs. We have backfilled when there are occasional special rates on shorter-term CDs so now we are pretty close to having it evenly divided, though.

Thanks!