Reinvesting in a CD Ladder

by Ryan Guina

Last fall I started a 5 year CD Ladder at my bank, USAA. At the time I thought it might be a good time to start a CD ladder because the fed had recently cut the interest rates. The interest rates that banks were offering quickly followed suit. Fortunately, I still had time to lock in good rates for my CD Ladder. This turned out to be a good move, because the fed cut interest rates multiple times since then, all the way down to our current level of 1%.

The first year of my CD ladder matured this week, and since I don’t need immediate access to the money, I decided to roll it back into another 5 year CD. My bank is offering a 5.00% APY for 5 year CDs, which is much higher than the interest rates I can get on the money at any bank. I currently have a couple high interest savings accounts which offer some of the highest interest rates around.

CDs aren’t the best investment for people looking to make a lot of money – even at the best of times they probably only just keep pace with inflation. But keeping some of your investments in cash can help smooth your returns and mitigate against large losses like we have recently seen in the world markets. And the best part of having a 5 year CD ladder is that I can save money at better rates than I can in a savings account and I am never more than 12 months away from access to some of my money.

Last fall when I started this CD Ladder, the rates had recently been cut. At the time, it was common to find online banks offering 5% interest rates. Since then, the fed has cut rates multiple times, to our current level of 1%. Keeping the money in the CDs ensured I would get a higher rate of return than leaving the money in my high interest savings account. CDs may not be for everyone, but it can’t hurt to leave a little money in one.

Published or updated August 3, 2010.
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{ 6 comments… read them below or add one }

1 Ryan

I figure as a small percentage it can only help smooth returns. It’s not a huge part of my overall portfolio.


2 Miranda

Ah, the CD ladder. Much maligned recently — until now. I like the idea of reasonably stable returns on part of my portfolio. Too bad that cash is going to yield less if Fed rates keep getting cut…


3 deepali

I think my retirement accounts are taking like 20% losses over the past few months. A 5% increase is not a bad deal. ๐Ÿ™‚


4 Emily

Right now I’m wishing I had been as smart as you and done that! It’s depressing watching my interest rate on my savings slowly drop to the point of almost nonexistence….


5 No Debt Plan

We’re building rungs on a 6 month CD ladder… one every month. Not nearly as good rate, but much more liquid.


6 Ryan

Emily: If I were smarter I would have taken all my retirement funds and put them into CDs within my retirement accounts – only to move them back into equities after this recent drop! ๐Ÿ˜‰

No Debt Plan: Very true. It all depends on the liquidity you need. I know some people who do them on 12 month ladders – so they still have money coming in every month, but usually have better rates.


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