Scheduling payouts for certificates of deposit

Q: Could you outline an ideal scheduling of about $600,000 in insured certificates of deposit spaced to mature over the next few years to minimize "interest-rate risk" and to produce maximum average yield, with, say, three to four CDs maturing each year to provide ready cash.

F. W., Laguna Hills, Calif.

A: "Normally when talking about 'interest-rate risk,' we mean the threat of interest rates rising, thus lowering the value of existing bonds," says Gary Schatsky, a fee-only financial planner and attorney in New York. "The problem now is that interest rates may fall, thus returning you less earned interest."

Therefore you need to set up a schedule that takes a little risk in itself, he says. Mr. Schatsky's advice: Put a little into six-month CDs that you will use for "ready cash." Then put even amounts in one-year, two-year, and three-year CDs. As each set matures, they can be rolled over, or cashed out. Finally, put a little - say $50,000 to $75,000 - into five-year CDs to gun for the highest-possible rate.

Q: I am in the 15 percent tax bracket. My financial adviser says that the 6.5 percent home-equity credit line I have has an "effective rate" of 4 percent. I also have a money-market account that currently earns 5.25 percent. Should I borrow as much money as I can on the home equity line and put it into the money market?

B.G., Boston

A: "No, the interest rates are too close to provide you any meaningful return," says Ed Slott, a CPA in Rockville Centre, N.Y. "There would be a lot of hustling going on just to eke out a nickel-and-dime gain, but in the process you would be taking on too much risk. What if interest rates fell, and the money-market account dropped sharply?"

You can't "borrow" your way to wealth, Mr. Slott says. "What you need to do," he says, is "try to get out of the 15 percent tax bracket into a higher bracket, where returns can outweigh some of the risk."

Q: I'm a young worker. Can I somehow deduct educational expenses to better my work.? I file with the short-form 1040.

Name withheld, New York

A: According to the Ernst & Young Tax Guide for 2001, you can deduct educational expenses only if you itemize your deductions and the expenses are considered "qualified" by the IRS.

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