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Bond ladder vs CD ladder vs a single CD

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Guys - I want to validate my analysis with the experts here. I had my brokerage give me some numbers on both a 2-10 year bond ladder (got avg 3.5% rate) and 2-6 yr CD ladder (got avg 2% rate). I can also simply keep things simple and invest in a single CD (maybe Patelco that's giving 2.75% for 5 years) and even if I withdraw early at the mid-way point it's only a 6 month penalty so comes out to be about 2.29% if I keep money for 2 years and 11 months. Although 2.29% is lower than 3.5% I can get with a bond ladder, the two benefits are access to my money anytime and fully FDIC insured. What do you folks think of this CD with easy penalty strategy? I am unlikely to withdraw my money early which will give me a 2.75% rate and even if do, the rate isn't bad. The only reason I'll withdraw and if I do, I'll withdraw the whole thing is if the S&P takes a real downturn and I want to move money into equities or if I'm buying an investment property, etc

Thanks

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rated:
lodak008 said:   Guys - I want to validate my analysis with the experts here. I had my brokerage give me some numbers on both a 2-10 year bond ladder (got avg 3.5% rate) and 2-6 yr CD ladder (got avg 2% rate). I can also simply keep things simple and invest in a single CD (maybe Patelco that's giving 2.75% for 5 years) and even if I withdraw early at the mid-way point it's only a 6 month penalty so comes out to be about 2.29% if I keep money for 2 years and 11 months. Although 2.29% is lower than 3.5% I can get with a bond ladder, the two benefits are access to my money anytime and fully FDIC insured. What do you folks think of this CD with easy penalty strategy? I am unlikely to withdraw my money early which will give me a 2.75% rate and even if do, the rate isn't bad. The only reason I'll withdraw and if I do, I'll withdraw the whole thing is if the S&P takes a real downturn and I want to move money into equities or if I'm buying an investment property, etc

Thanks

Why not use a combination of bonds and CDs? CDs can have higher yields than bonds for the same term.

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Are these Bills, Munis, or corporate bonds. It may have an impact on teh tax component which will make a difference in comparing them.

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none of the munis are in-state for me so assuming not tax free

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anybody else?

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lodak008 said:   none of the munis are in-state for me so assuming not tax free
  
Still federal tax free.

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broadly speaking FDIC CDs are a better deal on a risk/return basis than the bond market these days.  If rates rise, you can lose money on bonds, while with CDs you won't and can potentially break them to reinvest if rates really rise higher than what you're getting paid.  I think you should find some long term good rate CDs and go with that.

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The main difference between the 3.5% bond ladder and the 2.0% CD ladder is that those bonds will have some credit risk. If those were risk-free treasury bonds, the rate would probably be lower than comparable CDs. The bonds could also go down in value when interest rates go up, but this would not be a problem if you hold them to maturity.

There is not really any good reason to go with a 2.0% brokered CD ladder vs. a 2.75% single bank CD with a low early withdrawal penalty. If you have to break the CD early, the loss of value selling the brokered CD on the secondary market will probably be worse than the bank early withdrawal penalty.

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lodak008 said:   Guys - I want to validate my analysis with the experts here. I had my brokerage give me some numbers on both a 2-10 year bond ladder (got avg 3.5% rate) and 2-6 yr CD ladder (got avg 2% rate). I can also simply keep things simple and invest in a single CD (maybe Patelco that's giving 2.75% for 5 years) and even if I withdraw early at the mid-way point it's only a 6 month penalty so comes out to be about 2.29% if I keep money for 2 years and 11 months. Although 2.29% is lower than 3.5% I can get with a bond ladder, the two benefits are access to my money anytime and fully FDIC insured. What do you folks think of this CD with easy penalty strategy? I am unlikely to withdraw my money early which will give me a 2.75% rate and even if do, the rate isn't bad. The only reason I'll withdraw and if I do, I'll withdraw the whole thing is if the S&P takes a real downturn and I want to move money into equities or if I'm buying an investment property, etc

Thanks

  Sounds to me like the Patelco deal might work out for you.  And the insurance is a nice plus. Just don't buy into any bond funds . . . not that you mentioned that option.  And at least look at the I bond deal still available this week from Treasury Direct.  That deal is "insured", too. 

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I see the treasury direct bond at 2.76% but it seems it's a max of 10k per year - accurate?

Thx

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lodak008 said:   I see the treasury direct bond at 2.76% but it seems it's a max of 10k per year - accurate?

Thx

  
Answer is complicated:

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