Forget Bond Ladders for Now; CD Ladders Pay Higher Rates
April 30, 2019 by Bernice Napach
Bond ladders are a popular vehicle for investors, like retirees, who want a guaranteed income available over time and are willing to hold the bonds until maturity, but at current interest rates a CD ladder makes more sense.
The CD yield curve, unlike the Treasury yield curve, slopes upward, which means that longer maturities have higher yields. Among Treasuries, three- and six-month bills and the one-year note are yielding more than two- and five-year notes because the curve has inverted at the front end after being flat for a period of time.
Meanwhile, the highest yielding 1-, 2-, 3-, 4- and 5-year certificates of deposit have an annual percentage yield that tops the 10-year Treasury yield and is almost equal to the yield of AAA-rated corporate bonds, which carry more credit risk. (The CDs are FDIC insured for accounts of up to $250,000.)
“It’s the best time in a decade to do this,” says Chris Horymski, senior research analyst at MagnifyMoney, a subsidiary of LendingTree.com, referring to CD ladders. “Rates [for CDs] weren’t budging until the past 12 months, when coincidentally, the Treasury yield curve started to flatten.”
Wink’s Note: CDs are averaging 0.88% (taxable) today. Fixed annuities, on the other hand, are averaging 3.18% (tax-deferred).