Ask Money

A bond ladder

Chris Farrell Aug 17, 2009

Question: Looking for safe place for investing which pays a higher yield than CD’s. As a senior, in these uncertain times, I am a conservative investor. Miriam, San Diego, CA

Answer: Today’s low yields are tough on savers, especially seniors looking to live off their savings. However, even though it appears that the recession is ending there is still a lot of risk in the economy and markets. So, I think the risk of reaching for yield is too high. I’d stick with government-backed savings, from Treasury bills to CDs.

One time-tested strategy is to create a “ladder” of CDs or U.S. Treasuries. The idea is to invest in securities with different maturities. For example, using the national CD rates published in today’s Wall Street Journal you could buy a 6-month CD at 1.25%, a 9-month CD at 1.45%, a one-year CD at 1.61% and a three-year CD at 2.61%. Now, let’s imagine in six months that interest rates are higher. You will have a short-term CD maturing at that time and you can reinvest the money at the higher rate. What if rates go even lower over the next six months? You’re still earning a relatively better return on your longer-term higher-yielding CDs. You can also do this with Treasuries bought directly from the federal government at

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