Stacking ING Orange CD's

[Bluezy]

I'm wondering if anyone is using the tactic of stacking their certificate of deposits? Meaning to open CD's in 1, 2, 3, 4 and 5 year maturity dates, then reinvesting each CD at maturity into a new 5 year CD. I've read about this tactic on financial planning sites.

I am considering this because of current ING Orange CD rates. You don't need a high balance to get started and, at this writing, ING has excellent rates.

Any thoughts would be appreciated.

[Tree0164]

It is very smart financial move as long as you have an outside emegency fund. I haven't done CD's in a long time but it always something that my parents did. I know that they put our college savings in CD and then would renew them.

[Amytheamazing]

I use State Farm Bank for my investing. They offer slightly higher rates than ING and I like knowing that I can go to my agent's office if I have questions about something. I have Auto Insurance, Renter's Insurance, a credit card, CD's, a Roth IRA funded from my mutual fund contributions. I'm young (23) and don't have a lot of assets to invest but they still treat me very well.

[terry1156]

I've never really understood the reasoning behind stacking when interest rates are rising as in the case now. Why would I wnat to lock in a 5 year CD when I'm pretty confident that interest rates will rise? I can understand if I think interest rates are going to fall. Am I missing something on the rising interest rate part?

[BAGAGT1]

I agree with terry, in these times of rising interest rates, I would be looking for the best rate in the shortest time frame. If you have 10K to put in a CD, I would look into Corus Bank in Chicago, who is offering a 4.37 APY for one year CD. Do a search on bankrate.com for the best CD rates.

I have half of my e-fund in a one year CD. It provides a slightly better interest rate than my Credit Union account, while still being a safe investment.

http://www.bankrate.com/brm/rate/high_home.asp

[Amytheamazing]

I agree about the disadvantage to LT CD Rates. I would suggest holding your CDs at a bank that allows your bump your rates up. I know Hibernia Bank www.hibernia.com offers this as does Capital One. I ladder One Yr CD's so that one renews every 3 months.

[goodtosave]

You may want to consider 10 month Liquid CDs from Washington Mutual, World Savings and other banks if they offer them. The difference between the liquid CDs and traditional CDs are that you are required to maintain the min. balance for the whole term but you are free to take out the remaining balance at any time. WAMU has a limit of 1 withdrawal every 7 days.

WAMU and World Savings are paying 3.80% APY currently for their liquid CDs.

[Bluezy]

Thanks to all for the input. I will be checking into the liquid CD's before I make the investment.

[TBH]

I agree-don't do the five year ladder while rates are so low. I plan to ladder 1 year CDs myself like amytheamazing describes. I just bought a 1 year CD at ING, knowing there were higher rates out there, but I have a joint account with my honey at ING so it was easy to put some of our e-fund in a CD there. Also, I like ING's clean, simple all-online business plan.

Sigh. Should probably look at some of these other online banks with higher rates than ING.

[CRFSaver]

Actually the best thing to do is do the math. Level of rates have less affect then shape of the yield curve. The Yield curve is quite flat so there is less incentive to go out further on the yield curve. On the other hand when the curve is steep, even if rates go up you can still make out quite well because even though rates might go up in 3 months or 6, the time you are waiting in low paying short duration CD's offsets any gain from the higher rate. It is quite simple to figure out what the best thing to do with excel, quatro pro, lotus or any other spread sheet programs. See how much cash you get by investing now and see how much you get if you wait 3, 6 or 9 months.

[TBH]

Originally Posted by CRFSaver

Actually the best thing to do is do the math. Level of rates have less affect then shape of the yield curve. The Yield curve is quite flat so there is less incentive to go out further on the yield curve. On the other hand when the curve is steep, even if rates go up you can still make out quite well because even though rates might go up in 3 months or 6, the time you are waiting in low paying short duration CD's offsets any gain from the higher rate. It is quite simple to figure out what the best thing to do with excel, quatro pro, lotus or any other spread sheet programs. See how much cash you get by investing now and see how much you get if you wait 3, 6 or 9 months.

Um, what? Could you explain the "yield curve" a little more?

Thx.

(Had to take an elementary algebra class in college because I couldn't test out of it and it was required for humanities majors. I can add, subtract, multiply and divide, but more sophisticated math concepts just get a blank stare from me.)

[CRFSaver]

http://www.bloomberg.com/markets/rates/

If you look at that link near the bottom you will see a graph. As you have seen with CD rates, a longer term CD will have a higher interest rate then a short term one on average. That Yield Curve is a graphical representation of that relationship. Horizontal is the term (1 month, 3 month, 5 years, 10 years, etc), and rates on the verticle axis. The relationship between those rates changes all the time. A steep yield curve will have the line be closer to verticle versus horizontal.

So here is how I would analyse it (this is a simple simple example). You can get a 2 year CD or a 1 yr CD. the 2 YR ihas a 4% rate and the 1 yr has a 3% rate. Now if you expect rates to go up 25 basis points in a year (lets assume parallel which means on every point of the curve the rate goes up .25%), find how much interest you would get for a 2 yr CD now or a 1 year CD now and a 1 YR CD with the higher .25% rate.

So I can do a 2 YR CD and make 80 dollars in two years or I can buy the one YR CD and another 1 yr CD a year from now and would only make 62.50. This is a very simple example and and probably not a very good example but wanted to show where it might be better off getting the longer term CD now versus waiting. It makes a bigger difference as you go further out. As I read this it is a terrible explanation!

This example used a 1000 dollars for the CD amount.

[TBH]

Thank you, I get it now.

Huh. My assumptions were wrong. This just makes me feel like without more of a math-brain I can't hope to be a good investor. But I guess the point is to save money, and invest it in a reasonable if not stellar way, and that's better than just saying "I'm bad with numbers so I won't bother".

But I guess that's why I read personal finance advice columns, and haunt these discussion groups. So I can benefit from other people who understand this stuff better than I ever will.

[CRFSaver]

You dont need to do complicated mathmatics, algorithems or financial models. All I did to do those numbers are 1000 times 3% and 1000 times 4%, etc. You can do that on any calculator or any spreadsheet. You would be surprised how many professionals use this method. LOL Please dont be discouraged. Realized I have worked in the fixed income markets since I graduated from college so I know this better then the average joe. I used that very argument to persuade a former employer to invest in a longer term bond even though she was adamant rates were going up (they went down actually). It was better off buying the longer term (2 year) bond versus the 3 month bond.

[ken1706]

Probably a good example of the flat yield curve would be ING CD rates. Going from 1 to 2yr, the rates rise 0.35% (4.15 to 4.50). Going from 2 to 5yrs, the rate only rises 0.25% to 4.75%. I don't see much reason to go longer than 2 years at ING. Although I have to admit it's hard to predict future interest rates.

One thing I like about ING is how easy it is to get a CD online after you have a savings account. Since there's no minimum, I would recommend getting many small CDs rather than one. That way, if you need the money, you only need to break 1 or 2 CDs rather than take the penalty on one large CD.

For example, instead of getting one 5K CD, open five 1K CDs. Does anybody know of any issues with opening multiple CDs at ING?

[Bluezy]

So far, I have not found anyone with issues regarding mulitple CD's at ING. Which was one of the reasons I thought of stacking there in the first place. I am still doing research, and will not be making the actual transaction until I feel comfortable with it.

I appreciate all the comments...Thanks to each and every one for your input.