ING Rate Cuts Affect Our CD Ladder Decisions

by Kevin on December 30, 2008

I’ve been documenting our construction of our first CD ladder over the past few months.

Our Current CD Ladder Setup

This is what we’ve got so far.

  • CD 1: 3.75% (September)
  • CD 2: 3.75% (October)
  • CD 3: 3.50% (November)
  • CD 4: 2.75% (December)

All of the CDs are six months in length and represent 1/6th of our 3 month emergency fund. The idea being that once we have all six months in CDs, we will consistently have a CD maturing each month. If we run into an emergency where we need to tap the fund we can use our incomes as the first line of defense. The maturing CDs then act either as a refresher or act as an income stream. If absolutely necessary we could turn in all of the CDs at once, but you pay a penalty to do that. With ING Direct the penalty is 3 months worth of interest. You likely won’t lose much money, but I’d rather be earning interest than paying it!

ING Direct Drops CD Rates Another 0.25%

Unfortunately for us, ING is passing on falling rates to the savers of the world. In fact as I was researching this article last night the rates changed right before my eyes. These are new, current as of 12/30/2008 CD rates for ING Direct:

  • 6 month: 2.00%
  • 9 month: 2.25%
  • 12, 18, 24, 30, 36, 48, and 60 month: 2.75%

Frustration with Dropping CD Rates

This is frustrating for two reasons. The first is my ING savings account is currently paying 2.50% on my money. Thus, I have no incentive to open a CD with the bank at a lower rate than I could get with instantly liquid cash in the savings account.

My second frustration is more along the lines of a bit of worry — if they are dropping CD rates to 2.00% for 6 months, is my savings account rate going to fall below that (1.75%)? I sure hope not. (I miss the days of 4% savings rates!)

We’ll Wait on Next CD Rung Decision

I typically open up the new CD at the end of the first week of the month so we have time to look at our options. But as it stands right now I doubt ING will adjust their CD rates up. The only trigger for us would be if the regular savings account rate went below the CD rate — then I would lock in for six months. For now, I’m obviously leaning toward leaving the money in the savings account to earn that extra 0.50% interest.

{ 3 comments }

Ashley @ Wide Open Wallet December 30, 2008 at 10:35 am

That stinks. It is very frustrating to have your savings rates dropped. It doesn’t make any sense that a 6 month cd would be so much less than a regular savings. I sure hope savings doesn’t drop below 2%. That is so little!

dealman December 30, 2008 at 10:48 am

Great article!

You can submit it to BankFiesta.com to share with others, hopefully will get you some additional visitors too.

Cheers!

Start-Up January 8, 2009 at 4:36 pm

I don’t think you should ever toss your money into something that is paying a smaller amount of interest, especially if you are losing financial flexibility to do so. The only reason is if you think the savings account rate will drop well below the current CD rate. Hopefully they wont drop as I’m also using ING for its savings account.

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