No Interest in CD's

Twelve years ago we bought bank Certificates of Deposit, which at the time provided a yield that exceeded inflation. CD's are safe because they're backed by FDIC insurance under the same terms as regular bank accounts.

We decided to "ladder" CD's. Laddering is a strategy that trades some flexibility for higher yield.

$40,000 was split into four $10,000 accounts:

2Y matures May 2011 2.90%
3Y matures May 2012 3.35%
4Y matures May 2013 3.75%
5Y matures May 2014 3.95%

CD#1: we rolled over the CD every two years.

CD#2: in 2012 we reinvested the $10,000 plus interest for two years, then cashed out in 2014.

CD#3: we rolled over the CD every four years.

CD#4: we cashed out in 2014 at maturity.

Note: "rolling over" the CD means investing the principal and accumulated interest for the same term at a market rate. The 2-year CD, for example, was reinvested for another two years at the bank's new two-year rate. Both CD#1 (2Y) and CD#3 (4Y) mature this month.

I called First Republic Bank , a reputable bank that has serviced us well, for a quote this week on our two remaining CD's. The customer service representative said that the rates were 0.40% and 0.45% for two and four years, respectively. Since the consensus inflation rate for 2021 and beyond is 2% or higher, it took only a second to decide that the funds be returned to us when the CD's mature.

The Compound Annual returns actually received on each CD are shown below. The returns show that reinvestment rates have always dropped below the original 2009 interest rates.

Note: one "convenience" of CD's is that the bank makes it easy to roll them over. The notice of maturity states that if the bank doesn't hear from us it will automatically renew the CD. So I didn't bother to talk to them after 2014.

In 2018 I received a notification that my account was "dormant" and subject to seizure by the State.

One would think that the posting of interest income would count as "activity." Moreover, the State of California could cross-reference the interest to our tax returns and see that we were, you know, alive. But I don't trust them to take the effort.

It goes to show that you can't go to sleep on even the safest investments