CD rate/maturity strategy

[DrDan]

I have a number of CDs at various maturity points and at different rates.

As these mature, I am faced with the dilemma as to how long to reinvest the money.

Based on today's interest rates, does anyone have a thought as to how to select an appropriate CD period based on the various rates?

For example, at what rate do I commit to 12 months, or 18 months or 2 years or longer?

[thoughtanarchist]

1. Might want to stay short now when you ladder your CD's

A laddering schedule can go like this:

Buy your CD's in 3 month increments
- 3 month
- 6 month
- 9 month
- 1 yr

As the 3 month matures, reinvest it with a 1 yr.
and so on with the 6 and 9 month CD's

After your first year you have 1 year CD's that mature quarterly, each in turn.
This allows you 4 opportunities to cash out without penalty every year.

You can repeat the pattern with 2 yr, 3 yr, 4 yr, and 5 yr CD's.

But short term rates are not much better then long term rates right now (because we currently have http://www.investopedia.com/terms/i/invertedyieldcurve.asp">an inverted yield curve which you can see http://finance.yahoo.com/bonds/composite_bond_rates">here and is often a harbinger of a recession) ...Anyways, I've seen 3 month CD's out there for 4.5% which makes it hard to appreciate the extra 1/2 point you get for a 5 year commitment.

Based on that info I'd advise you keep your time commitments short.

As for rates...


Here's comparative rates for 1 year CD's from bankrate:
http://www.bankrate.com/brm/rate/high_ratehome.asp?params=US,416&product=15

[CountAllVotes]

2. that is what I have been doing

However, I go for much longer periods of time. I do not regret this one bit. I bought a 4-year CD that will be coming due in July and it is paying 4.75%.

Every year I buy CDs at the same time when a sale occurs at the bank.

I just got decent rates in January and bought some more. This way I am laddering the CDs having a batch come due that have been drawing decent interest rates every year.

I think laddering is a very good idea personally.

It is great if you can find a bank/credit union that offers a 3 month penalty vs. a 6 month to 1 year penalty for cashing CDs in early. This strategy worked very well for me when the rates were pinned (seemingly forever) at ~1%.