Comments on: Creating a CD Ladder for Your Emergency Fund or Other Savings to Earn a Better, Safe Return

By: carmen

carmen — Mon, 17 Aug 2009 14:55:23 +0000

how will this affect your taxes every year? even if you roll it over into another cd, cash it out,or invest some other way, I am curious what happens. thanks

By: Gina

Gina — Wed, 22 Jul 2009 21:42:32 +0000

@Irene–this is a do-it-yourself project that you can do at any financial institution that offers CDs. While there may be a minimum deposit required, most have lots of maturity schedules to choose from. Check at bankrate.com for banks that offer the best rates. I set up a similar ladder all at once by choosing a 6 month, 12 month, 18 month and 24 month and put the same amount in each one. As each one matures, I plan to renew it for 24 months. That way, I’ll have cash I can tap every 6 months.

By: Irene

Irene — Fri, 03 Apr 2009 20:55:52 +0000

I would like to know which instituions offer this kind of cd ladder? I called both credit unions my husband and I used. Both said they don’t carry this kind of service. Please respond. Thank you Irene.

By: Kathryn

Kathryn — Tue, 21 Oct 2008 13:26:57 +0000

I’m looking into doing this with our emergency fund. But I’m curious, where do I look for competitive rates? Our bank’s rates are significantly lower than the ones you cited. thanks

By: Matt

Matt — Tue, 07 Oct 2008 19:12:28 +0000

Did you go with an 18 month rotation vs. 12 months because that is the amount of emergency fund you prefer, or because for some unknown reason for a couple weeks the 18 month CD at ING had a higher rate than all other terms?

By: Ted

Ted — Tue, 07 Oct 2008 16:43:47 +0000

Trent,
That was a brilliantly written article on laddered CDs. I’m a college student (well, on hiatus for right now, but still college technically) and I have been talking with my father (who is actually the one who turned me onto your site) about doing this myself once I get my emergency fund rebuilt from the last time I had to drain it and have some extra funds in there to play with. I had understood everything about it and then your article pointed out how I could make the gradual increase from a 6 month ladder to an 18 month ladder without the initial time investment. Now I think I have all the keys I need to make this work very soon. Keep up the good work.

By: Roger

Roger — Tue, 07 Oct 2008 14:48:46 +0000

Heh, what a coincidence; I’ve just opened a 6-month CD at ING to start up a ladder, mostly to juice my returns as I try to save for a house down payment mid-2009. Amazing how much fun you can have saving.

By: Mrs. Micah

Mrs. Micah — Mon, 06 Oct 2008 18:57:16 +0000

One thing I love about ING Direct is that they let you create your own CD ladder all in one go on one screen. (Since you didn’t mention it, I’ll add that I wrote about it on my site if anyone wants to check that out.)

I’ve heard people object to keeping EFs in CDs because they think people are less likely to use them. But with a ladder, it’s perfect because there should always be something coming due soon, so you can start with it if you need emergency funds. Less painful than taking it all out of one CD.

By: Shevy

Shevy — Mon, 06 Oct 2008 18:02:33 +0000

I’ve actually done the exact opposite with the GICs that make up the bulk of my RRSPs. That is, this week I’m combining 3 different GICs into one so I don’t have a variety of deposits maturing at different times that have to be kept track of.

While I may break things up and ladder them when I get truly close to retirement (say, within the final couple of years beforehand) I wanted to keep things as simple as possible for the time being.

Of course, this is retirement savings not an emergency fund. If I had the kind of money you’re talking about in my emergency fund I’d consider laddering that now. However, once I pay for our current emergency (car problems on our sole vehicle that are now approaching $2000) our EF will be wiped out and we’ll have maxed out our cards (we have one card each). At the rate I’m able to save, there won’t be enough to ladder for a long time.

By: kz

kz — Mon, 06 Oct 2008 16:32:53 +0000

Is the 18 months’ worth of expenses JUST your emergency fund and doesn’t include other savings? The reason I ask is because my husband and I (no kids, yet, so that might factor into it) have an emergency fund that would fund between 6 and 9 months’ worth of expenses (depending on how bare-bones we stripped the budget). When I read things like this, I think, “wow, maybe we don’t have enough in our emergency fund.” However, if you consider all of our cash savings, we could cover all expenses (except funding 401k, etc.) for almost 20 months. The difference is, most of that is ear-marked for a future car or a future down payment on a house, etc. Of course, we could always delay those purchases if something comes up, but I’m just curious: how do others define their emergency funds? Part of me wants to dismiss this as overkill, but I find myself wondering if I’m missing something and leaving myself (and my husband) open to problems down the road…

By: Sharon

Sharon — Mon, 06 Oct 2008 16:02:18 +0000

You CAN cash out a CD early. Yes, there is a penalty. I say if you are concerned about that fact, you don’t need the money bad enough to cash it out. If it is a true emergency, it is available.

By: Cathy

Cathy — Mon, 06 Oct 2008 15:42:37 +0000

I do the exact same thing. I have about 10-12 months of emergency fund money available, however, I won’t need all of that at once. I keep 4 months available in liquid cash, and the rest I laddered in $1000 increments. If something happened right now, by the time my CDs matured, they will be ready for use. I figured since I don’t need all of the money at once, why not let the extra earn a few more dollars/cents interest?

By: Catherine

Catherine — Mon, 06 Oct 2008 15:29:29 +0000

It’s not that I think that this plan wouldn’t work, but it still seems needlessly complicated to me. As someone else said, $1,000 is a pretty small emergency, at least for those of us who are saving and are financially stable (and you’d have to be at that point to implement this plan). And you could still be stuck for two or three weeks for even that amount if the emergency doesn’t happen during the 10-day grace period for the rollover of that months’ CD.

To me, it makes more sense to keep a little more (a few thousand, maybe?) in a regular savings account, and then ladder fewer longer-term CDs. If it really is a major emergency, the money is still acessible at the loss of the interest.

By: Alan

Alan — Mon, 06 Oct 2008 15:10:32 +0000

WRT how often you get paid your interest: depends on the CD. Some are monthly, some are semi-annual, some very short term ones pay on maturity.

WRT ladder vs plain-old-savings: CDS allow to you increase return on your investment by sacrificing liquidity (that is, you make more interest in return for reduced access to the funds). By laddering, you still retain some liquidity since some of the money is constantly coming available.

I’ve been laddering in 6 month increments rather than one month increments, simply because it means I have to pay less attention.

By: Kevin

Kevin — Mon, 06 Oct 2008 14:03:03 +0000

Trent –

Are you going to let the interest stay in the CD upon maturity or are you taking it out each time to put towards another investment or savings account?

By: brief

brief — Mon, 06 Oct 2008 14:00:17 +0000

This is what I’ve been planning to do – indeed, with the CD vs savings rates being what they are in my country (6-7.25% vs 2-2.75%), it’s pretty dumb of me to be waiting so long. I’m going to ladder my money as four 1-month CDs spaced a week apart; that way, I have a quicker access to my money should I need it, so it will be reasonably safe to put more of my emergency fund on the CDs.

By: Char

Char — Mon, 06 Oct 2008 11:11:38 +0000

Brent, the interest disbursements are typically for retired people who actually live off only their interest, so they never break into the actual principal in the CD they just have the interest sent back to their checking or their savings where they can use it. Having enough money when one retires to be able to do that is AWESOME but unfortunately not as common as is should be.

By: ABCs of Investing

ABCs of Investing — Mon, 06 Oct 2008 11:09:03 +0000

Personally, I’m not a fan of cd/bond ladders for an emergency fund unless you have a very large amount of money saved up.

If you have an emergency then how do you know that the money required will not exceed one months expenses?

I would suggest keeping the emergency fund to a reasonable level and any extra can be part of your regular investments

By: Chris @ Comichacks.com

Chris @ Comichacks.com — Mon, 06 Oct 2008 09:00:59 +0000

Trent,

This sounds great in theory, but how much will you make from such an investment after your first round of CDs have matured? Does the interest accrue monthly or only at the end of the term?

Thanks!

By: M

Mon, 06 Oct 2008 06:42:07 +0000

I’ve been thinking about this for a while, I will hopefully be retiring in 8 years and would like to set up a little rolling fund, money coming available every month, if I need it I can use it otherwise just let it roll over.