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A, B, CD for EF

June 26th, 2011 at 02:21 pm

Before we bought our house in 2007 I had been trying to get a CD Ladder started for our EF, but then most of our funds were used for a downpayment on the house.
If you are not familiar with a CD Ladder it works like this:
Say for example you have $12,000 you want to put in CDs. Each month of the year you would purchase a 1 year CD for $1,000. At the the end of the year you will have 12, $1,000, 1 year CDs, but you won't have to wait a year for them to mature, you will have a 1 year CD maturing every month. Then each month, if you had an emergency or needed the money for something you could cash out that CD, or you could renew it for another year, and you would only have to wait a month till the next CD matured. Also using this you can get longer term CDs, which tend to have better interest rates. Because you already have CDs maturing every month for the next 12 months, the next one you could renew for 16 or 18 months, and keep spacing them out further, depending on your cash flow and when you think you will need the funds.
Another way to set up a CD Ladder would be to open all of the CDs at the same time, but for different terms, for example, a ladder could consist of 12, 24, 36, 48 and 60-month CDs. Or for a less aggressive CD ladder you could choose shorter terms such as a 6, 12, 18, 24 and 30-month ladder, which will keep your money more readily available.
I was looking into working on this again (on a smaller scale since I don't have $12K to invest in CDs) since our EF is up to $3,000. But CD rates are still in the dumps.....here is what ING is offering now:

6 Month 0.75%
9 Month 0.75%
12 Month 0.75%
18 Month 0.75%
24 Month 1.00%
30 Month 1.25%
36 Month 1.25%
48 Month 1.25%
60 Month 1.50%

Ewwwww! Especially since my regular savings account is making 1.00%.....so anything less then a 24 month CD I would actually be losing money off of our savings account. Of course there are many banks and online institutions where you can get CDs other then ING. But I have used then before, I like the user friendly website, plus you can invest any amount in a CD, it does not have any minimum amount to open a CD.
But if you want to look at rates, bankrate.com is a great site to use if you are looking to open CDs or a CD Ladder and they will help you find the best term/rate for you. I checked it out for 1 year CDs and even the best rates are only 1.26% right now. So I will just be leaving my EF in my ING savings account for now.

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