|Is now the time to lengthen your
"For the typical investor there's no need for
them to be an expert -- the decisions aren't moment-to-moment. Banks
will follow with rate moves. They've been a follower in that process;
they're not trying to get ahead of the curve. The individual, if
a buy-and-hold investor, doesn't have to try to guess if the Fed
will raise rates further. The banks will give them an opportunity
to get in," he says.
Ed Gjertsen, CFP and vice president of Mack Investment
Securities in Glenview, Ill., says the time is right to build the
CD ladder, but cautiously.
"CD duration should start to be extended. People who have been buying CDs with maturities of one year to 18 months should consider going out two to three years."
The yield curve for high-yield
CDs is flat. As of this writing, here are the highest yields
you can find for various maturities, according to surveys by Bankrate.com.
Whether you extend a ladder to two years or five,
you're averaging better than 5 percent annually. Not a bad return
on a risk-free investment. The key is to buy high-yield CDs. Your
local bank or credit union may or may not offer the best rates.
Nationwide, average yields are considerably lower.
Your ladder doesn't have to be CDs. Bonds, for instance,
can be laddered, but be sure to study the pros and cons of various
investments before laddering. You can lose principal with
corporate bonds if you sell before maturity or if the company defaults.
Some investments, such as Treasury notes, may yield
less than a CD, but you won't pay state or local tax on the interest.
You'll have to do some math to decide if that beats a CD of comparable
length. You'll accrue "phantom" interest with some government
securities, such as Treasury Inflation-Protected Securities, also
known as TIPS. That means you don't actually receive the interest
until maturity, but you must pay taxes on it as it accrues.