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How to Move Your CD Ladder

After learning about Ally Bank’s most recent 0.25% CD renewal bonus [3], I decided I wanted to move my CD ladder [4] from ING Direct to Ally Bank. Ally Bank offers some of the best CD rates [5] 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 [6]) . 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 [7])