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about to start a 5 separate 1k 3 year CDs.

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    about to start a 5 separate 1k 3 year CDs.

    the certificate of deposit interest rates at my bank for under 10k are as follows:

    3 year: 2.47%
    2 year: 1.70%
    13 months: .9%
    12 months: .6%
    6 months: .4%
    savings account: .3%

    yesterday i put in 2k for the 13 month .9%, but i've rethought that.
    the penalty for withdrawing your funds before the maturity date is a fine of three months worth of interest.
    bearing this in mind, if i put in 1k for 12 months at the 13 month rate, i end up with about 1,009
    if i put in 1k for the 3 year rate, i end up with 1025 after 12 months. once you subtract the three month interest from that, i end up with 1019

    in this way i would end up with 1019 for signing up for three years and canceling it, vs a little over 1009 if i signed up with and stuck with the 13 month.

    i am planning on opening five separate CD accounts with each having 1k in them, so that i can withdraw part of the money when / if i need to and not pay the whole fee.

    seems to me like the only danger of locking into the 3 year CD is if interest rates skyrocket between now and then, which is possible but unlikely. the one thing i am wondering is at what point of interest rate change would i cancel, pay the three month fee, and lock in the new rate.

    any thoughts on this?

    *edited. apparently the penalty for canceling any CD over 11 months is 6 months of interest, not 3
    Last edited by Relmiw; 06-22-2010, 05:46 PM.

    #2
    Laddering CD's like you are doing, is a great way to maintain some liquidity and earn higher interest rates. However, I'm not sure I'd do it with the interest rates those CDs are earning. For example ING, an online bank which has among the highest interest rates (but not usually THE highest), has a savings account currently earning 1.10%. So if you just opened an ING account (or another high interest account) you could maintain access to all of your money, not have to worry about any fees, and earn more money in interest!

    As for pulling out of your CD, if that's what you decide to do, I'd do it fast. I believe if you decide to do it within 3 days, there is not penalty. But I'd read the fine print to be sure.

    Comment


      #3
      You sure a high interest savings or checking account won't do? Just as an example, Ally bank is offering 1.29% APY. Your money stays liquid. Your interest rate isn't locked in, but seriously, how much further can it fall at this point, especially when compared to locking in as little as 0.4%?

      Comment


        #4
        Originally posted by ktmarvels View Post
        Laddering CD's like you are doing, is a great way to maintain some liquidity and earn higher interest rates. However, I'm not sure I'd do it with the interest rates those CDs are earning. For example ING, an online bank which has among the highest interest rates (but not usually THE highest), has a savings account currently earning 1.10%. So if you just opened an ING account (or another high interest account) you could maintain access to all of your money, not have to worry about any fees, and earn more money in interest!

        As for pulling out of your CD, if that's what you decide to do, I'd do it fast. I believe if you decide to do it within 3 days, there is not penalty. But I'd read the fine print to be sure.
        thanks. i would still have about 5k between my savings / checking after this, so i'm not worried about getting to the money very soon. i MIGHT need it a couple years from now for grad school though.

        as far as the three day grace period, that is interesting you said that because my mom said the same thing. i called the bank though and they said there is a $9 fee for canceling it before it accrues any interest. when i specifically asked about the 3 day thing they said there was no such rule. i will look into the paperwork i have right now.

        Comment


          #5
          Originally posted by Relmiw View Post
          the certificate of deposit interest rates at my bank for under 10k are as follows:

          3 year: 2.47%
          2 year: 1.70%
          13 months: .9%
          12 months: .6%
          6 months: .4%
          savings account: .3%

          yesterday i put in 2k for the 13 month .9%, but i've rethought that.
          the penalty for withdrawing your funds before the maturity date is a fine of three months worth of interest.
          bearing this in mind, if i put in 1k for 12 months at the 13 month rate, i end up with about 1,009
          if i put in 1k for the 3 year rate, i end up with 1025 after 12 months. once you subtract the three month interest from that, i end up with 1019

          in this way i would end up with 1019 for signing up for three years and canceling it, vs a little over 1009 if i signed up with and stuck with the 13 month.

          i am planning on opening five separate CD accounts with each having 1k in them, so that i can withdraw part of the money when / if i need to and not pay the whole fee.

          seems to me like the only danger of locking into the 3 year CD is if interest rates skyrocket between now and then, which is possible but unlikely. the one thing i am wondering is at what point of interest rate change would i cancel, pay the three month fee, and lock in the new rate.

          any thoughts on this?
          You almost have this right.

          rates will go up within 3 years, and I predict they go up within 18 months. They cannot go lower.



          Open one CD up now (13 months)
          then next month open another
          then next month open another
          then next month open another
          and do that 13 times
          (so instead of 5*1000=$5000 in 13 month CDs ($1000 each)
          do

          10*500 in 10 CDs, there will be 3 months you have no CDs (if you can earn $1500 between now and then that is last 3 month CDs).

          Now you have 3 things going for you
          1) if rates go up before 13 months, the new CDs capture the higher rate
          2) if you need money, you have a CD maturing each month, so no penalty exists (at all)
          3) you have less risk in any single CD investment


          If the 13 $500 CDs is "too much" then try this

          Open a 90 day CD now- put $666 into it
          next month open another 90 day CD with $666
          the third month open a third 90 day CD with $667

          so you have a short term CD ladder, every 30 days one of those matures

          then with the remaining $3000 open

          a 1 year CD today with $1000
          a 2 year CD today with $1000
          a 3 year CD today with $1000
          when each of those matures, open a new 3 year CD

          so you have 3 90 day CDs capturing shorter term interest rates
          and a longer 3 year CD ladder capturing longer term interest rates.
          Last edited by jIM_Ohio; 06-22-2010, 11:58 AM.

          Comment


            #6
            it has just come to my attention that the penalty is six months of interest, not three. three is only if it is for less than one year

            Comment


              #7
              Originally posted by ktmarvels View Post
              For example ING, an online bank which has among the highest interest rates (but not usually THE highest), has a savings account currently earning 1.10%. So if you just opened an ING account (or another high interest account) you could maintain access to all of your money, not have to worry about any fees, and earn more money in interest!
              Originally posted by Broken Arrow View Post
              You sure a high interest savings or checking account won't do? Just as an example, Ally bank is offering 1.29% APY. Your money stays liquid. Your interest rate isn't locked in, but seriously, how much further can it fall at this point, especially when compared to locking in as little as 0.4%?
              Originally posted by Relmiw View Post
              the certificate of deposit interest rates at my bank for under 10k are as follows:

              3 year: 2.47%
              2 year: 1.70%
              13 months: .9%
              12 months: .6%
              6 months: .4%
              savings account: .3%

              any thoughts on this?
              Since the above rates are available to you, take whatever you were wanting to ladder, and if any of the steps were 13 mos or less, then put that money in an account like above.

              1.29% > .9% > .6% ....

              If you open a 12 mo CD, you effectively pass up twice the interest you could have had by opening an account like above, and leaving it alone for a year. 1.29% > 2*.6%


              My point is, as long as the rates are available at the banks above, you should not even consider any CD with a lower rate - whether you're trying to ladder or not.

              Comment


                #8
                is it likely that the bank would forbid me to withdraw funds from a CD prematurely?

                i am looking at a contract for a CD here and it reads
                "If we consent to a request for a withdrawal that is otherwise not permitted you may have to pay a penalty"

                also

                "you must present this certificate when you request a withdrawal or a transfer.

                has anyone had any problems when trying to withdraw early?

                Comment


                  #9
                  Originally posted by Relmiw View Post
                  is it likely that the bank would forbid me to withdraw funds from a CD prematurely?

                  i am looking at a contract for a CD here and it reads
                  "If we consent to a request for a withdrawal that is otherwise not permitted you may have to pay a penalty"

                  also

                  "you must present this certificate when you request a withdrawal or a transfer.

                  has anyone had any problems when trying to withdraw early?
                  I have withdrawed early a few times and never had an issue

                  Comment


                    #10
                    Originally posted by jIM_Ohio View Post
                    You almost have this right.

                    rates will go up within 3 years, and I predict they go up within 18 months. They cannot go lower.



                    Open one CD up now (13 months)
                    then next month open another
                    then next month open another
                    then next month open another
                    and do that 13 times
                    (so instead of 5*1000=$5000 in 13 month CDs ($1000 each)
                    do

                    10*500 in 10 CDs, there will be 3 months you have no CDs (if you can earn $1500 between now and then that is last 3 month CDs).

                    Now you have 3 things going for you
                    1) if rates go up before 13 months, the new CDs capture the higher rate
                    2) if you need money, you have a CD maturing each month, so no penalty exists (at all)
                    3) you have less risk in any single CD investment


                    If the 13 $500 CDs is "too much" then try this

                    Open a 90 day CD now- put $666 into it
                    next month open another 90 day CD with $666
                    the third month open a third 90 day CD with $667

                    so you have a short term CD ladder, every 30 days one of those matures

                    then with the remaining $3000 open

                    a 1 year CD today with $1000
                    a 2 year CD today with $1000
                    a 3 year CD today with $1000
                    when each of those matures, open a new 3 year CD

                    so you have 3 90 day CDs capturing shorter term interest rates
                    and a longer 3 year CD ladder capturing longer term interest rates.
                    i see what you are saying about the advantage of having money available when i need it, but i'm 90% sure that i don't need any of it for at least a couple years.

                    even if i had to take it out next year though, just taking the 6 month interest penalty when i cancel a 3 year CD would leave me with more $ than if i let a single year CD mature, right?

                    also, if the interest rate does change substantially between now and then, i can still just close out the CD and lock in the new rate

                    my concern now is that the bank will deny my request to close the account. has anyone heard of this happening before?

                    Comment


                      #11
                      Originally posted by Relmiw View Post
                      is it likely that the bank would forbid me to withdraw funds from a CD prematurely?

                      i am looking at a contract for a CD here and it reads
                      "If we consent to a request for a withdrawal that is otherwise not permitted you may have to pay a penalty"

                      also

                      "you must present this certificate when you request a withdrawal or a transfer.

                      has anyone had any problems when trying to withdraw early?
                      I've never had any problems with cashing in a CD early. I've done it often.
                      About a year and 1/2 ago I bought six CD's with a five year maturity date.
                      They average 5% interest. My friends said I was crazy because I might have to cash one before the maturity date. I told them I don't care because I'm still way ahead in interest.

                      Comment


                        #12
                        Originally posted by EconoMutt View Post
                        I've never had any problems with cashing in a CD early. I've done it often.
                        About a year and 1/2 ago I bought six CD's with a five year maturity date.
                        They average 5% interest. My friends said I was crazy because I might have to cash one before the maturity date. I told them I don't care because I'm still way ahead in interest.
                        that sounds very similar to what i am thinking of doing.
                        suppose the interest rate goes up to 5% in a couple years, i wonder if the bank would deny my request to close the account and restart it because they want me at 2.5%

                        Comment


                          #13
                          Just go back to the bank and ask what it would take to switch to the 3 year CD. They'll know what all their policies are in order to switch it over.

                          Ask if they can waive the interest penalty as long as you open the new 3-yr CD.

                          Might not be able to, but worth a shot to ask.

                          Comment


                            #14
                            my thought is that its not even worth it, i'd rather be sleeping on it under my matress.
                            retired in 2009 at the age of 39 with less than 300K total net worth

                            Comment


                              #15
                              my mattress isn't FDIC insured

                              Comment

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