Things The WATCHTOWER never taught you - laddering CDs

(From the "Things the Watchtower never taught you" series.)

Jehovah isn't going to be bringing Paradise along anytime soon, so it falls to YOU to provide for YOURSELF. One of the best ways to do this is by SAVING MONEY.

(How many of us have heard Circuit Servants counsel that there was no sense saving or investing since Armageddon was so close? I did. The guy was a horse's ass and is now pretty high up in the WTB&TS hierarchy, so all HIS needs are taken care of, but you can bet your bippy there ain't no room for YOU at Bethel. You're on your own, Sister!)

If you're going to start saving money, it's a good idea to start out with a plan of what you want to do.


First, you should save with the goal of establishing an emergency Fund for yourself equal to six to twelve months your annual earnings. If you have no annual earnings, go back to step zero, which is GET A JOB.

This is an EMERGENCY FUND that you will use to pay for your essential needs if you lose your job. It is not a vacation fund or a party fund or a hooker fund. You can have those if you want to, but they should be separate from your EMERGENCY FUND, and your emergency fund should be your #1 priority, into which you will put 10% of your gross earnings.

If that sounds crazy to you, put down The Watchtower and read "The Richest Man In Babylon" by George S. Caslon.

You want your emergency fund to have three characteristics: it must be completely "liquid" (available to you at (almost) a moment's notice, it should be earning you the greatest possible interest, and it should be low-risk. Take a look at what your local bank is giving as interest on "savings accounts." My local bank pays one-quarter of one percent. What that means is that if I put $100 into a savings account with them and left it alone, it would become $200 in only 288 years. I haven't got that long.

Meanwhile, the same bank charges nearly two orders of magnitude more if YOU borrow money from THEM.

So you need to open a high interest rate savings account. There are a few places if you are willing to look for them. ING and GMAC bank are two. Do your homework. The higher the interest rate you get, the sooner you will meet your goal for your emergency fund.

Once you've reached the point where you have an adequate emergency fund, you can begin to think about beginning to tie your money up for longer periods of time so that it will earn you extra interest.

One way to do this is by building a "ladder" of CDs (certificates of deposit, not compact discs).

Here's an example I just worked out for a friend. You're my friend, and I want you to be successful, so I thought I'd share it with you. Here goes:


GMAC Bank offers the following CD terms:
(I have omitted the 3 month and 9 month terms because they do not interest me.)
Balance Term Rate APY maturity
$500 or more 6 months 2.23% 2.25% October 2009
12 months 2.62% 2.65% April 2010
18 months 2.66% 2.70% October 2010
2 years 2.86% 2.90% April 2011
3 years 3.15% 3.20% April 2012
4 years 3.20% 3.25% April 2013
5 years 3.44% 3.50% April 2014


My initial purchase will be four separate 6 month CDs, plus one each of the 12 month, 18 month, 2 year, 3 year, 4 year and 5 year CDs. Each of these ten CDs will be for 10% of the entire amount I plan to deposit. This plan can be made to work with as little as $5,000 total (ten CDs for $500 each).

Six months after the initial purchase, four CDs will mature.
One will be used to purchase a 2 year CD which will mature in October 2011,
One will be used to purchase a 3 year CD which will mature in October 2012,
One will be used to purchase a 4 year CD which will mature in October 2013,
One will be used to purchase a 5 year CD which will mature in October 2014.

(These purchases fill-in the "gaps" at 2.5, 3.5 and 4.5 years)

After this, every six months one of the CDs will come to maturity. When it does, it will be rolled into a 5 year CD. Once all CDs have been rolled into 5 year terms, the system can run by itself, automatically rolling each CD forward into a 5 year term every six months.

When CDs are purchased, you can specify whether you want the interest mailed to you or rolled back in to the account. I prefer to roll it back in.

I hope this discussion has been beneficial. YOU are the captain of your fate.

Nathan, I really appreciate this thread!  There are so many of us who grew up feeling these kinds of these were beside the point and showed a lack of faith.  Kudos to you for spelling it all out so clearly. 

a very practical and useful thread

  I have ING savings accounts and CDs.  They pay a lot more than a regular bank.  Not a get-rich-quick scheme but it is helping me weather the stock market storm. 

Another thing to know is about your retirement programs at work.  Take advantage of them to the extent it benefits you in the long-term.  I'm told contributing $50 per month to a 401k lowers your income taxes by a comparable amount, meaning you'll get the same amount in your paycheck but $50 will be saved for your retirement instead of paying taxes.  (Not sure if this is true?)

If your company matches your contribution to pension or retirement savings, you're missing out if you don't avail yourself of that.

Whenever mr. rebel8 or I get a new job or new benefits--of any kind--I immediately check into the benefit and take advantage of whatever it is, if possible.  There is no sense turning away free money or services if you can use them.  I am surprised how many people don't do that.

I also sign up for every free member card there is (restaurants, etc.).  I get discounts, free food, etc.

I use a no-annual-free credit card for most of my purchases so I can keep my $ in interest-bearing accounts a little longer each month.  I pay the balance in full each month.  I get a few hundred $ cash back each year.  (Used to get free plane tickets.)

What else.....hmm....don't skip participating in class action lawsuits if you get something in the mail.  I just got $100 for a suit I didn't even file, just for filling out 2 forms.  Also look for market research studies, the ones that pay.  I've made a few hundred bucks doing that, for spending a few hours answering questions.

Fatwallet.com rocks too, when you find samples of things you actually use.

I appreciate the positive comments and additional ideas. I think an important part of helping folks out of the Watchtower is help them rise out of the poverty that keeps them hoping for the end of the world. Take a look at the WTB&TS - they don't take their own advice when it comes to matters financial; they are a tax-free money-making machine that makes almost a BILLION dollars a year with seven million impoverished followers. (The few rich JWs are the exception that proves my theorem - they didn't get rich because they were Dubs, but IN SPITE of it.)

I've never been good with finance.  I just don't get this.

It sounds like once established you're going to have CD's maturing every 6 months.  But you'll always have exactly 10 of them going.  So every 6 months you'll have the option of withdrawing or re-investing that $500.  Doesn't seem like much of a safety net to me.  All of this is just so you can get a 3.5% return, right.  Aren't there easier ways to get 3.5% on $5000?

Perhaps a graph or example figures would help explain why this is good?

do not try this guys.......I made a CD ladder.....it collapsed as I was halfway up to the attic

Great post, Nathan.

In addition to the above,  I would hold some gold and consider investing in some foreign bonds.  Why?

Because we could have an inflationary collapse based on the dollar within a few years.  In fact,  the economy looks like a dream right now, as countries accumulate incredible debts that will supposedly be repaid by future generations - who won't exist because of population declines in Europe, Japan and elsewhere.

metatron

Mp3's are hot, easy access, totally portable...

S

In this economy, I ONLY trust banking my money and wouldnt go into the stock market in ANY form.  So this sounds like a good plan!  I wonder if I will live long enough now, at almost 55, to see it to fruition? 

How much money in interest a month does this plan generate once it gets going Nathan?

(checking pockets, sofa seats, laundry lint catch....for MONEY now LOL!) 

Saving is like dieting you just GOTTA DO IT and quit making excuses for why you cant!!

I understand your distrust of the stock market but unfortunately,  the stock market could be your only hope, if things go badly for the US economy.

How so?  How much will your CDs be worth if the dollar collapses?  The deficits are now being projected as vastly beyond anything ever attempted.  More than that, the Chinese hold enormous amounts of US government debt and may now have figured out how to deal with the US 'just printing money'!  The head of China's Central bank recently expressed interest in the 'Bancor' concept - in which a currency is based on a basket of commodities, rather than just gold or public trust.

The Chinese are reputed to be buying up copper and other metals far beyond their needs.  And what do you think will happen to the dollars they got rid of?  This could create a problem with huge inflation.  You may want to look into CD's denominated in foreign currencies that depend on commodities like Australia and Canada.

metatron 

MissingLink said,

I've never been good with finance.  I just don't get this.

It sounds like once established you're going to have CD's maturing every 6 months.  But you'll always have exactly 10 of them going.  So every 6 months you'll have the option of withdrawing or re-investing that $500.  Doesn't seem like much of a safety net to me.  All of this is just so you can get a 3.5% return, right.  Aren't there easier ways to get 3.5% on $5000?

Perhaps a graph or example figures would help explain why this is good?

Yes, ML, you will have CDs maturing every six months, and eventually they will all be for the long 5-year term, thus earning the highest rate this bank offers. And yes, every six months, when a CD matures, you will have the option of cashing it out or rolling it over.

But you are mistaken if you thought I was suggesting that you limit the CDs to just $500.

What if each CD was for $500,000 dollars? Would that provide a safety net?

IFF* you had millions, say, for example a total of $5 million to divide among investment vehicles, you could do better than my CDs. You could put the $5 million into US Treasury notes, which would be ultra-low risk and very secure. the interest paid would be less, but you could probably live off of 2% interest on $5M. That would be $100,000 a year, and it would be more when interest rates moved higher. And it would be tax-free income, too. That's kind of what H. Ross Perot does with his money. If you lived off of the interest, then the entire principle amount , $5M, could be left to your heirs or to the WTB&TS.

The basic plan is simple:
1. earn some money
2. save some of what you earn
3. look for ways to get your money to "work for you" via the magic of compound interest
4. relax, be generous to your friends and charities, teach your kids how to DO THIS FOR THEMSELVES. (If you just give them the money they won't appreciate it.)

Most people screw up on #2 (THANKS, WATCHTOWER!) and many can't get past #1. Sometimes we mess up on #3, but if we PAY ATTENTION to our money (instead of to the flock, unless you've got a flocking lot of money), those downturns we can usually recover from. What can't be recovered from is "never getting started."

ML also asked,  "Aren't there easier ways to get 3.5% on $5000?"

Probably, but how secure are they relative to the CD? Did you have some specific alternative in mind?

*iff, Math., "if and only if."

Nathan, you are providing a very valuable service, which more should avail themselves of - especially the young, and especially in these times!

I wholeheartedly agree that the WBTS keeps their drones perpetually bizzy 'building up treasures in heaven' while giving zero attention to how these poor schleps are going to survive daily in the ever-ending 'present system of things'.  Jehovah will provide is the mantra, but heaven help you if you land in dire straits...all your problems are 'inevitably your own fault' and any hope you ever had of the 'brothers coming to your aid' are quickly dashed.  The last time I heard the comfortably cushioned CO drone on about retirement planning being 'false reasoning' and the need for shift-working brothers to find alternate employment so as not to miss meetings, I decided enough was enough.  At least the Christian radio programs out there offer some kind of financial planning information to their adherents.  The WBTS is too lazy to even assist in that meagre way.  They just want YOUR MONEY, is all.

So I just wanted to express my appreciation for your efforts.  I've learned something new today - how to ladder CDs.  Thank you!