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Banking on Multi-Bank CD Ladders

Last week, George commented [3] in my post detailing how to move your CD ladder [4] explaining that there’s “an implied preference that all CDs in a ladder be at a single institution.”

George is right, everyone implies that your CD ladder [5] is held at a single institution. That is not a requirement of a CD ladder and it’s a case of the money vs. convenience trade-off. You can earn the highest possible rate for your CD or you can have the simplest system… you often cannot have both.

Single-Bank Ladders

There is only one reason – simplicity. There’s value in creating a simple system that is easy to maintain and while that value isn’t quantifiable in dollar figures, the value is there. By having all of your CDs at one bank, you create a system you are more likely to maintain and keep up with. While the amount of work required to maintain a multi-bank CD ladder is hardly back-breaking, it’s less than trivial.

With a one bank CD ladder, you can set your CDs to automatically renew. By turning on auto-renew, you can leave your CD ladder on auto-pilot. You aren’t tempted to mess around with the savings because they are continually renewed into one-year CDs.

With a one bank CD ladder, you can see your entire CD ladder in once place. This helps you keep things in order and lowers the burden on your memory (or your bookkeeping system). Your financial network map [6] is cleaner, easier to understand, and in the event of an emergency, easy to explain to someone else.

Multi-Bank Ladders

A multi-bank ladder sacrifices simplicity for, hopefully, interest yield. By selectively renewing or moving your CD “rungs” at maturity to banks with the best CD rates [7], you ensure that you will have the highest possible interest rate for your ladder.

The easiest way to manage this type of system is to keep track of it in a separate spreadsheet using a clever naming scheme for your CD rungs. If I were to do this, my tool of choice would be Excel and I’d give my the following naming convention:

The XX/XX/XX would specify the date of maturity and I’d increment the three-digit number by one each time I created a new CD. In my spreadsheet, I’d note which bank the CD was located in. I’d also add a cell that gave me countdown to the maturity plus probably a lot of other useless but personally fascinating numbers like yield, effective APY of the ladder, etc. 🙂

Do you have a multi-bank CD ladder? If so, I’d love to hear your thoughts on it – was it worth the hassle? Is the amount of effort overblown? Do you recommend everyone do it?

(Photo: Peyman [8])