How to Move Your CD Ladder

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LaddersAfter learning about Ally Bank’s most recent 0.25% CD renewal bonus, I decided I wanted to move my CD ladder from ING Direct to Ally Bank. Ally Bank offers some of the best CD rates and with ING Direct lagging behind, I’m almost compelled to move the funds even without the renewal bonus.

As I thought about the move some more, I had a few more options than I realized. It seems simple enough to move a CD ladder from bank to another but there are a lot of ways you can do it.

How to Move Your CD Ladder

The easiest way to move your CD ladder is to move a “rung” once the CD has matured. As each rung matures, you transfer your funds to the new bank and purchase a new one-year certificate of deposit. It will take you a full year for you to move your CD ladder from one bank to another and it requires that you be diligently moving your money each month. To make sure you don’t automatically renew, be sure to set your CDs to deposit funds into your account on maturity.

If you have extra savings and the new bank offers a lot of under-one year CDs, you could get a head start on your savings. You could deposit funds into smaller 9-month, 6-month, and 3-month CDs so that you can fill up your CD ladder a little faster. As the smaller CDs mature, you can use the proceeds from your old CD ladder to boost them up to their normal amounts.

Closing a CD Early

If the CD rates differ greatly, you may want to consider closing a CD early. In general, a CD with an original maturity period of one year or more will penalize you six months of interest. A CD with an original maturity period of less than one year will penalize you for three months of interest. In the very rare case of Ally Bank, the penalty is only 60-days regardless of the CD’s original maturity period (see page 3 of their Deposit Agreement, effective March 31, 2010) . You will have to do some math to determine if this makes sense. Unless the rates differ greatly, this is generally not recommended.

Recent CD Renewals

Lastly, if you recently renewed a CD, you may be able to close the CD without penalty. Many banks offer a 7- to 10-day grace period on recently renewed CDs. This is so that you can reverse a renewal if you change your mind or forgot the CD was maturing. If you fall within this grace period and intend to move a CD, call up the bank and cancel the renewal.

In our case, we opted to go with the simplest rung by rung move because sub-one year CD rates at Ally Bank are only above a quarter of a percent higher. It doesn’t make sense to close a CD and, given the hassle, not worth setting up a more complicated system than a rung by rung move. I simply shut off automatic renewal on my ING Direct CDs and set a monthly reminder to move the funds.

Have you moved a CD ladder recently? Was there a consideration or option that I missed?

(Photo: zouny)

{ 15 comments, please add your thoughts now! }

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15 Responses to “How to Move Your CD Ladder”

  1. DIY Investor says:

    A quick off post question: why so much focus on CDs by all the young readers and yourself when stocks are on sale?

    • Jim says:

      Bargaineering is about general personal finance issues and the “stock” posts generally advise readers to buy index funds. Once you offer up that advice, it’s done. The CD posts, and their frequency, aren’t a recommendation to deposit into CDs, it’s just that there is more to write about.

      • Tuan says:

        I am 23 and I myself have a CD ladder. It is where I place most of my emergency fund, rather than leaving it sit there in a high yielding savings account (which I also have). If there is an off chance I need all of the money for an emergency, losing some interest on penalties is more than acceptable in my book.

        • RJ Weiss says:

          I agree Tuan. I have a two tired emergency fund. First three months are in cash. Next six months are in short-term bonds. I can’t imagine a situation where I would need more than three months worth of expenses all at once.

  2. A while back, I started a CD ladder, but when I learned about the high-yield checking accounts, I decided they are a much better investment. They have a higher interest rate, and they are much more liquid(not locked in for long periods of time). Sure, there is the monthly purchases requirement, but like you said in the “Grand Plan” (I think that is where you said it), you can just go to the grocery and buy yourself a banana a few times to take care of that.

    Jim, have you thought about going that route instead of opening new CDs?

    If CDs ever catch up to the high-yield checking, I may give the ladder another go, but until then, I am going with the more liquid, better investment.

  3. I used to be a bug supporter of CD’s. They are stable, provide consistent income, FDIC insured, and are amazingly simple to manage. However, the return rates on CD’s really has not been that great lately…

    I was able to secure one for 3.53% at Fifth Third but it is locked up for 5 years. The good news that is that the penalty for early withdrawal is only 6 months interest. So after 6 months, I can liquidate the CD without risk of losing any cash.

    I will probably maintain a CD here or there just to balance out my portfolio but I think mutual funds will still get the meat of my savings. well… that and the lottery! (that is an investment right?) 😉

  4. moljacks says:

    @Jim: What are your thoughts about when interest rates will start to rise?

    I used to have a cd (saving for a specific longterm goal) and I would like to start a ladder but I am hung up on the low interest rates. I remember getting 5%!

  5. tbork84 says:

    Aren’t most CD rates comparable to even online savings accounts right now?

    It doesn’t seem like a great time to be locking in any interest rates unless you are on the one borrowing right now.

  6. George says:

    There’s an implied preference that all CDs in a ladder be at a single institution. When I open/close a rung, I usually shop around for the best rate and move. Yes, there’s a bit of administrative overhead, but the yields are almost always greater when you move, even when considering some of the renewal bonuses available.

    • Jim says:

      Yes there’s an implied preference that they’re all at the same bank though that’s certainly not a requirement. I keep them all at the same place for convenience though shopping around does net you the highest possible rate.

  7. zapeta says:

    I’ve got my short term funds in a rewards checking account earning 4%. Unless rates rise drastically I won’t be using a CD ladder in the near future.

  8. Greg says:

    Jim, with only a 2 month penalty at Ally Bank you do not need to ladder. You just split up your money into a couple of CD’s and do a max term 5 year at 2.99 % and if rates go up take the penalty and start over again at the higher rate.
    I had a $30,000 emergency fund in a MMA making 1.35%. I moved the money to 3 ALLY 5 year CD’s of $10,000.00 each, earning 2.99%.

    I split them because if I had an emergency I could go down the line 1-2-3 $10,000.00 each if I had to.
    If I cashed one out I would only get a $50.00 Penalty. Big deal, my CD’s are paying me $41.25 more every month compared to my old MMA anyway.

    If rates go up 1% to 4% I would get $300.00 more per year if I switched all $30000.00 over from my 3 CD’s. So I would take a $150.00 penalty and be up after 6 months.
    With this plan with ALLY I get freedom to move my money with little penalty -2 months, and max % rate at all times, 2.99% currently – beat that.
    Ally also has no minimum deposits either. What do you think?

  9. eric says:

    I think that’s the most straight forward way to go. You just have to remember to do it for the rest of the CDs.

  10. James says:

    you hit the nail on the head. if your CD has matured it is smart to move it.

    if it has not you will get penalized and it almost certainly is not worth the switch.

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