Why I'm investing in 3-year CDs

Umbrella over stacks of coins

Between now and year's end, I have 21 CDs maturing at 11 banks.

That portends a hectic holiday season.

Although I dread the onslaught of maturity notices (I’ve already received three), I’m optimistic.

You see, I have a Plan in place.

Since I began investing in government-insured CDs, my consistent objective has been to maintain an overall annual taxable yield of at least 1.625%.

This represents what I consider necessary to preserve principal, after projecting other income, expenses, donations and taxes, and providing for contingencies.

Fortunately, I’ve achieved a yield comfortably above that in the 2009-2011 period (although, of course, it’s declined yearly).

My Plan for the 21 CDs calls for locking-in CD rates three years forward, to meet the 1.625% minimum yield objective in 2012-2014.

This reflects my assessment of rate trends during the balance of Ben Bernanke’s term as Federal Reserve chairman, which ends in January 2014.

Specifically, I’m hoping to reinvest the proceeds of my maturing CDs exclusively in 3-year CDs with an overall annual yield between 1.70% and 1.75% -- without resorting to longer-term CDs to prop up yield.

This is problematic. Three-year CD rates are likely in for a further drubbing before I’m through.

Anyway, here are some things I’m doing to implement my Plan.

First, as a retiree with lots of free time on my hands, I’m monitoring CD rates daily, researching not only interest rate websites like this one but also visiting the websites of banks and credit unions I think might be good candidates for my money.

Second, I’m opening small accounts at promising institutions at which I’m not presently a depositor, to avoid the potential hassles and delays (e.g., identity checks) of establishing a CD as a "new" customer.

This month, for example, I’ve joined, and established minimum balance savings accounts at, RAFE Federal Credit Union (www.rafcu.com), whose 3-year jumbo certificate of deposit rate is 1.77% APY, and Firstmark Credit Union (www.firstmark.org), whose comparable CD rate is 1.85% APY (but steadily declining).

Finally, I’m making sure I have adequate accounts and account privileges to move maturing CD money around efficiently.

I’ve set up multiple online money market accounts, and established wire transfer rights where I may need them (like at MetLife Bank, which recently trashed its rates).

I’ll undoubtedly have to tweak my Plan as circumstances warrant.

If rates tank completely, I’ll have to go to Plan B.

Whatever that is.

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