Comments on: BVC #4: Certificate of Deposit (CD) Ladders

By: pauls

pauls — Tue, 15 Dec 2009 22:49:47 +0000

An excellent explanation with brilliant clarity. Nice work!

By: CuriousAG

CuriousAG — Thu, 14 May 2009 18:04:49 +0000

Jim can I provide a link to this vide on my blog? Really found it very clearly explained

By: Hank

Hank — Sun, 29 Mar 2009 23:39:00 +0000

Jim,

Great video! I really enjoyed watching it. You really broke the concept down, and you are right…watching it on a video was better than just reading the words on a computer screen in a blog post. Thanks!

By: Dee

Dee — Sun, 22 Mar 2009 18:25:08 +0000

Thanks Jim!

The video did make it easier, I just came in clueless! Haha.

I think I get it now.

Great blog

By: dmeanea

dmeanea — Sun, 22 Mar 2009 18:24:17 +0000

It seems to me that there’s a trade-off with a laddering system as opposed to a single CD: basically, you’re investing time and effort to set up and maintain multiple CDs in return for the funds being more liquid (available). Thus, as you design your own laddering system, you have to find a good balance between how often you might need the money and how many accounts you’re willing to maintain.

Another trade-off: the more CDs you split your money into, the more often you’ll have money available, but the smaller that available portion becomes. If your cash needs exceed that available amount, you’re going to have to dip into your un-matured CDs.

This brings up the point that you need to know what the early withdrawal fees are on the CDs you set up. The HSBC website says, “If you do withdraw any principal prior to maturity there is a penalty equal to 30 days simple interest.” It seems to me I’ve seen a few other banks which charge one quarter’s (90 days’) worth of interest as a penalty. Neither of those seem like very harsh penalties to me, so I consider a CD to be almost as liquid as my checking and savings accounts.

I prefer to have 12-month CDs which mature every six months. I don’t want to maintain more than two accounts, and if a cash emergency does arise between maturity months, the money is available for a small fee.

As always, any feedback is appreciated.

By: Jim

Jim — Sun, 22 Mar 2009 12:44:02 +0000

Shoot, this was supposed to make it easier.

When you roll the matured CD into the longer term, I just take the principal of the original CD and use it to buy the new CD. The long CD, the 12 month, has now become your 11 month so you’ll need to buy a new 12 month CD.

By: Dee

Dee — Sun, 22 Mar 2009 05:22:31 +0000

Color me realllly confused :/

Before this post, I knew nothing about CDs, so forgive me. I always assumed it was above my head so I never looked into it. (and apparently I was right)

Can someone explain the “rolling” part of the ladder?

When you roll the shorter-term CD into the longer-term CD, are you simply adding to the total principal of the long CD, or buying a new CD altogether?

By: Jim

Jim — Sat, 21 Mar 2009 19:02:41 +0000

I only reinvest my original investment, so my CD is still balanced, but you can invest the entire thing (principal + interest). I put the interest towards other savings goals I have.

By: Anthony

Anthony — Sat, 21 Mar 2009 18:23:10 +0000

I have a question for those with CD ladders already going. I understand that you will reinvest your matured CD into another CD. Do you simply reinvest your investment/interest? Or do you continue to add a little to each new CD? Just curious…

By: Jim

Jim — Thu, 19 Mar 2009 15:08:59 +0000

Some people have difficulty understanding what they are.

By: Andrew

Andrew — Thu, 19 Mar 2009 14:52:36 +0000

CD ladders are hard to understand? Really?

By: Jim

Jim — Wed, 18 Mar 2009 20:50:59 +0000

Ah, I meant that they only offered 6, 9, and 12 months for periods of less than 12 months; sorry about the confusion. I updated the post to reflect this.

Thanks Matt!

By: Matt Fyffe

Matt Fyffe — Wed, 18 Mar 2009 20:45:16 +0000

Jim, in your post description when referring to ING, you say:
“As is typical of most banks, they only offer 6-, 9-, 12-month CDs but you can open multiple CDs through the one form, simplifying things.”

Correct me if I’m wrong in interpreting that as I did.

By: Stephanie PTY

Stephanie PTY — Wed, 18 Mar 2009 19:36:52 +0000

That’s a very familiar-looking whiteboard! Did you get the skull-and-crossbones magnets with it, too?

Good video. Sending it to a couple friends who asked me about CDs recently.

By: Jim

Jim — Wed, 18 Mar 2009 13:49:00 +0000

Did I say they were limited to a year in length? I know they have multi-year CDs (which are very common) so if I said that, I misspoke.