Our CD Ladder Fell Apart

by Kevin on June 23, 2009

In 2008 we started moving some of our emergency fund money from our ING savings account to a CD ladder made up of ING Direct CDs. Everything was going great until the financial crisis and related government intervention killed savings rates across the board. The drop in overall savings rates halted our CD ladder plans.

When the bottom fell out to the current rates (1.50% savings, 1.25% 6 month CD at ING Direct) it simply didn’t make sense to continue putting money into CDs.

How Far We Got with Our CD Ladder

At the time, these are the “rungs” we had put on our CD ladder:

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

Those were the days. Kind of like the days of 4% interest on savings accounts, too.

Why We Stopped Adding CDs to the Ladder

In hindsight this may have been a dumb move. When we halted the CD ladder the 6 month CDs were sitting at 2.00%. I didn’t jump on them at the time because the regular savings account was at 2.50%.

Of course shortly thereafter things dropped to the current levels. If I had jumped on the 2.00% CD it would be maturing the first week of July. Fortunately we weren’t putting a ton of money into the CD ladder and the missed opportunity of a little bit extra interest is minimal.

I’ll be the first to admit that I got a bit spooked by the financial crisis. At the time six months seemed like a long time to be without an admittedly small portion of our emergency fund. But again, it wasn’t much interest we missed out on for the “luxury” of liquidity.

Can We Rebuild the CD Ladder?

The whole point of CD ladders is to insulate you a bit from fluctuating interest rates while also earning a little bit extra interest over a standard savings account. With our first four CDs this seemed to work — even though rates continued to fall our first few CDs were locked in at better rates.

So can we rebuild the ladder?

Well, yes, of course we can. I could start picking up 6 month CDs at ING Direct right now, but on the surface it doesn’t make much sense. Rates are really, really low right now. At 1.25% there isn’t much further they could potentially drop. Sure our savings account could drop to 0.5% and CDs could drop to 0.25%, but at that point liquidity might be preferred to slightly higher interest rates.

I’m considering using MoneyAisle to find better CD deals. For the uninitiated, MoneyAisle is kind of like a LendingTree of high-yield savings accounts and CDs. You simply put in your criteria (amount you want to put into the CD, length of the CD, etc.) and the banks “compete” to give you the best deal available. If you want you can check out MoneyAisle on your own today. Tomorrow I plan to write up a walkthrough of using the site.

We’ll see if I find any smoking good CD deals.


MK June 23, 2009 at 1:39 pm

Check out dollarsavingsdirect.com. Their savings account is at 2% and their CD’s are sitting at 3% I believe….

Not great, but still better than a lot of other places!

Kevin June 26, 2009 at 8:06 pm

@MK: That 3% rate is for a 5-year term! The 16-month term is only 2.25%. Both are at or below average for their terms, unfortunately.

Do You Dave Ramsey? June 27, 2009 at 6:23 pm

I’ve always found the topic of CD ladders an interesting one. I need to write an article to explore my thoughts a little more…

But that’s not why I’m commenting. Rather I’m curious as to your motivation to stop. I get that rates were falling, but wouldn’t you also have caught the rates on the way back up?

It seems that building the ladder is such an involved process – it takes a year to set it it up – that stopping puzzles me.

I’m not against your motives or reasoning – holding cash with immediate access at a time of need is a great line of thinking. But, as stated, the ladder topic is very interesting to me and I’ve never heard of someone stopping or a ladder falling apart.

I applaud your candor and hope you don’t mind my line of question.

Thanks for sharing!

Kevin June 30, 2009 at 7:45 pm

@DYDR: Excellent question. I will address this tomorrow in the form of a post. Thanks for the great question.

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