Should I open a CD Ladder?

[MaryKay]

I got another email from my online bank that my savings account interest went from .80% to .60%. I've been reading about CD Ladder's and wondering if I should take some money out of savings and set up a Ladder, say equal dollar amounts in a 1-5 year Ladder. Any thoughts?

[disneysteve]

The rates are so low that it will hardly matter. A quick search going out to 5-year CDs shows rates topping out at about 1%.

If you have money in savings that you can afford to lock up for a while, moving some to CDs will tweak your returns a bit. There doesn't seem to be any benefit to going out past 3 years at this point because the rates from 3 years to 5 years really don't change much.

I'm in the same boat and just got the same email from Ally today. I will probably move some into CDs too.

[kork13]

Sad news from Ally.... It's just silly anymore. But yeah, I wouldn't even bother locking money away in a CD. You're not gonna earn much more than elsewhere, plus the money isn't readily accessible without penalty, so I don't see any value in them at present.

[Fishindude77]

CD rates currently stink, but I always maintain a CD ladder in addition to investments such as mutual funds, etc. It's good business to have money stashed in various different places and with a CD ladder you have one rolling over periodically where you could get to some cash fast if needed.

[bjl584]

I probably wouldn't in the current environment.
It's not worth tying up your money for the anemic returns.
A money market will serve you just as well, and you'll have penalty free access to your cash

[MaryKay]

CD rates currently stink, but I always maintain a CD ladder in addition to investments such as mutual funds, etc. It's good business to have money stashed in various different places and with a CD ladder you have one rolling over periodically where you could get to some cash fast if needed.

I was reading comments on another site regarding CD's/Ladders, and one guy, in particular, was dead-set against CD's...period. He said it would be better to go with 80% mutuals and 20% bonds. Thoughts??

[disneysteve]

I was reading comments on another site regarding CD's/Ladders, and one guy, in particular, was dead-set against CD's...period. He said it would be better to go with 80% mutuals and 20% bonds. Thoughts??

Those are two entirely different things. By 80% mutuals I assume you mean stock mutual funds. So no, you shouldn't put 80% of your cash allocation into the stock market. That could be a colossal mistake if something occurs and you need your cash in a hurry.

Your cash accounts aren't intended to make a lot of money. They are there for emergencies and to cover day to day expenses. You need that money to be both safe and accessible.

[Jluke]

Right now your money sitting is savings is not going to do too much for you.

doing a CD ladder won’t move the needle and would really just be something to do for the sake of doing something.

for me I decided to spend some of my money now. I did a refinance of my mortgage and that cost about 2k.

I am doing a large home project (hopefully) so we can have more room for kids to play and enjoy that large unused space (i.e. basement).

don’t forget that 2021 is right around the corner so that means new retirement contributions (assuming you are not retired).

as for that investment advice elsewhere. If you have a pile of cash beyond what you need to sleep well at night (emergency fund) you could consider investing it. Just know the risks and basically assume that money is untouchable once it is invested.

[Smilinggirl]

I think about this too. I’ve got about 1 1/2 years with of emergency fund. I’m maxing 401k and IRA and still adding several hundred dollars to regular savings each month. I don’t have nearly as much saved for retirement as I’d like though, so lately I’m thinking of opening a taxable investment account with Vanguard since CDs don’t seem worth the effort. Something with moderate to low risk since I have a low tolerance for potential loss. I could put a chunk of my EF into it, then just add a few hundred a month. I’m thinking of finishing off the basement as well. I don’t need the space, but it would probably be worth it if/when I downsize again in the future. My problem is that I don’t know as much about investing as I’d like and no one plan/idea stands out as definitely being the best idea for me.

[disneysteve]

I think about this too. I’ve got about 1 1/2 years with of emergency fund. I’m maxing 401k and IRA and still adding several hundred dollars to regular savings each month. I don’t have nearly as much saved for retirement as I’d like though, so lately I’m thinking of opening a taxable investment account with Vanguard since CDs don’t seem worth the effort. Something with moderate to low risk since I have a low tolerance for potential loss. I could put a chunk of my EF into it, then just add a few hundred a month. I’m thinking of finishing off the basement as well. I don’t need the space, but it would probably be worth it if/when I downsize again in the future. My problem is that I don’t know as much about investing as I’d like and no one plan/idea stands out as definitely being the best idea for me.

If you are maxing your 401k and your IRA (kudos to you for that) and still feel you need to be investing more for retirement, then a taxable account would be the way to go. If you're looking for some investment advice, I'd suggest starting a dedicated thread for that. Tell us what you have already and how your existing accounts are invested. That can help guide what your next steps might be.

Why would you finish the basement if you don't need the space? You'll never recoup those costs when you sell the place.

[Smilinggirl]

Why would you finish the basement if you don't need the space? You'll never recoup those costs when you sell the place.

Actually, I’ve spoken with my builder (he’s built my last two houses and I’ve known him forever) and two realtors and it would be profitable. He can work on it through the winter when he’s not able to be outside. Since I’ve known him most of my life, I trust him to stay on budget and to have access to the house when I’m not there.

[Fishindude77]

I was reading comments on another site regarding CD's/Ladders, and one guy, in particular, was dead-set against CD's...period. He said it would be better to go with 80% mutuals and 20% bonds. Thoughts??

CD's really aren't an investment in the current environment, more of a place to stash some cash safely and get a little bit of interest.
Anything in the market is at risk and has a chance of losing money where CD's do not.

Having blind faith in the market and putting everything there is no wiser than putting all of your investments on any other single speculative thing.
Diversification of your money is the safe long term bet; stock market, cash savings, real estate, a business, etc. A single investment could go south at any time. If you have a variety of investments, it would be very unlikely everything goes bad at the same time.

[disneysteve]

Actually, I’ve spoken with my builder (he’s built my last two houses and I’ve known him forever) and two realtors and it would be profitable. He can work on it through the winter when he’s not able to be outside. Since I’ve known him most of my life, I trust him to stay on budget and to have access to the house when I’m not there.

Nice. If they both feel you would make a profit, that's certainly worth considering. That's definitely not the norm.

[Jluke]

I think about this too. I’ve got about 1 1/2 years with of emergency fund. I’m maxing 401k and IRA and still adding several hundred dollars to regular savings each month. I don’t have nearly as much saved for retirement as I’d like though, so lately I’m thinking of opening a taxable investment account with Vanguard since CDs don’t seem worth the effort. Something with moderate to low risk since I have a low tolerance for potential loss. I could put a chunk of my EF into it, then just add a few hundred a month.

At vanguard consider Wellesley, Wellington, LifeStrategy or target fund with the appropriate Asset Allocation and exposure to international (if desired)

note these are not tax efficient in taxable (depending on tax bracket) and have slightly higher expense ratios. BUT they are simple and you can just keep adding.

I added Wellington in my vanguard taxable account because I had been going all in on VTI and wanted to have a “safer” allocation without choosing a bond fund on my own.

[Petunia 100]

At vanguard consider Wellesley, Wellington, LifeStrategy or target fund with the appropriate Asset Allocation and exposure to international (if desired)

note these are not tax efficient in taxable (depending on tax bracket) and have slightly higher expense ratios. BUT they are simple and you can just keep adding.

I added Wellington in my vanguard taxable account because I had been going all in on VTI and wanted to have a “safer” allocation without choosing a bond fund on my own.

I'd take a different approach. Go 100% stock and rebalance in your tax-advantaged accounts by adding more bonds there. Look at all of your investment accounts as one pot of money. No point in paying more taxes than you need to pay.