CD rates

arizonaroseMarch 13, 2009

If you had say ...50k ( just hypothetically speaking) in a CD that is maturing now, would you put the money in another low interest CD or would you put it in a savings account for hardly no interest for a few months waiting for the interest rates to rise? The best short term ( about 13 mo.'s) rate here is around 2.50% .

What would be the smartest thing to do?

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It depends. 50k in a CD is safe; so is a savings account or Treasury Notes. Low return is the name of the game now so would you be any worse for wear with a CD at a low rate?

I don't do CDs (or don't have any right now would be more accurate), but do have Treasuries, money markets, and a checking account that is too big but guaranteed by the FDIC. I use these vehicles to park money until a better investment comes along. I'm not gaining big interest, but I'm not losing principle either - at least with those. My brokerage accounts with stocks, bonds, etc. have reflected some of the volatility. In today's economic times, not losing is a good thing - so a CD with a fixed, albeit low, rate or savings account until rates rise certainly couldn't hurt.

I'm somewhat conservative - it happens with age. There are those who hold to the idea that "nothing ventured is nothing gained" or who have high risk tolerances, or those who need income more than long term growth. So, it depends.

    Bookmark   March 13, 2009 at 2:05PM
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Consider laddering several CDs by splitting the $50K into 3-4 chunks.

I'm so spooked right now that I've got most of my trading account in a short-term CD! Kept just enough free to get myself in trouble!! lol


    Bookmark   March 13, 2009 at 8:00PM
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duluthinbloomz4 , thanks for your reply. I'd like to have a little *extra* income from the CD, but right now the rate is so pitiful I think maybe just parking it in a savings account for a few months may be the answer. Hopefully things will improve.

tricia, yes...we've done the ladder thing. So, when the next one comes due I'll be wondering again what to!

At least the stock market has started to show some sign of improvement this week (knocking on wood).

Thanks for the reply's :)

    Bookmark   March 13, 2009 at 8:50PM
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My bank (in Maryland) has a 'no-fault" - 18 month CD. At about 3% (I haven't checked the rates for about 60 days, it could be your 2.5% now) I can buy a CD that can be changed once after 30 days. It's a little bit higher return than a savings account, and doesn't tie up the $ for a long term, as the one change would be to move the entire amount.
You could ask several banks in your area what they have to offer.

    Bookmark   March 14, 2009 at 7:46PM
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I am also conservative so much so I only use CD's, but at the present time it's all in a savings account. I plan to spend over half my savings on anything I want. I am not sitting on a bank account and have others spend my money.

    Bookmark   March 14, 2009 at 7:51PM
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I don't like earning interest.

Interest results when one listens to the bank's promise that you'll get every dollar back ... but they never mention the reverse, that, apart from the agreed rent on the money, you won't get one dollar more, either.

The only money that your dollar of principal will earn is earned now ... and it's taxed now ... at top rate.

When I buy Canadian stocks, they pay dividends, that used to be taxed at a lower rate ... and they reduced the rate even more, a couple of years ago.

As the number of dollars of principal can't shrink and can't grow, either, I need to hold some of the interest to put with principal to offset the shrinkage in value of each dollar each year due to inflation.

Which much of the time leaves nothing for me.

At age 70 I said that I wanted to fund my living till age 100 - 30 years, or 6 blocks of 5 years each.

As each dollar of the first block that I ate would no longer be available to earn, as the value of the assets would be eroded due to inflation every year, and as I expected to have increased need of funds in my later years to pay for retirement and nursing home fees, I figured that I should avoid spending much of the first block in the first five years - in fact, I'd better stretch it to ten years. That meant that I'd want over 80% of the asset still present after ten years ... and I've been used to putting funds that I didn't expect to use for 10 years into equities: mainly individual stocks, as I don't like the management fees charged by mutual funds, as only the rare one of them outdoes the relevant market averages.

Now, at 80, I had 80% of my assets in stocks, last year ... and have suffered a loss of 30% or so since.

No - not a loss, or at least a realized one. It's only a loss if I sell when the value is down.

I expect the value to recover, though I doubt that the recovery will be as fast or as high as after earlier recessions.

The governments are deep in debt ... and going far deeper, every year.

Plus, they're printing money.

Plus, many of our high quality jobs aren't just suffering a temporary lay-off: they're gone.

What would I do with a $50,000. maturing CD? How soon do I figure that I might need the money? If within the next five - ten years, I'd keep a good portion of it in stable-dollar asset.

If I didn't expect to need it for some time, probably loan about half out in a CD or GIC for about 6 mos. - but not a bond, for there may not be a commission, but there's a spread of often 1% or more between buy and sell prices ... which is substanttial, given current rates.

Figure to buy some stocks each month or two for the next year.

As many advisors say, no one can tell when the bottom of the market occurs, and prices bounce up a bit, then drop, then up again, then down some, then up some more ... for some time. It's only after a year or so that one can see where the bottom was. By which time a fair portion of the increase has taken place ... which folks sitting on the fence missed out on.

Advisors tell us not to try to time the market - no one has succeeded.

Warren Buffet says that stocks are on sale, and he knows a lot more about how to manage money than I. Some said that when he said that last fall, he turned out to have been wrong, and a few days ago he said that he hadn't been wrong, that stocks were on sale then ... but that he was out by a few months.

Stocks have turned out to have been on fire sale, more recently.

In a couple of years, maybe three or four ... those who said Mr. Buffet was wrong may wish that they'd followed his advice.

I'd bought some stocks recently, which have gone down.

I expected a buyout that was planned just before the financial debacle to have put some fresh money into my hand ... early last year ... then mid year ... then fall ... then just before Christmas.

Then the potential buyers' auditors told them that the deal was a bad one ... so they aborted.

I'm still holding those stocks (Canada's biggest telecom) ... now saleable for about $24.00 ... when the deal was to have gone through for $42.75 - some difference!

But the only way that I can have appreciable money available to keep buying through the bottom of the market ...

... is to take some of the certificates to the bank and borrow some money in order to keep putting the seeds into the ground ... for many of us figure that it's spring-time in the stock market: time to put seeds into the ground.

Maybe some'll get frozen off (this is the north part of our continent) but one needs to plant over a period, to allow for some losses.

In the stock market, however, usually a quality stock doesn't die, like a plant does after frost ... it gets delayed for a while, but recovers after while. It makes its owner feel pretty chilly in the meantime, however.

I bought a bank stock 42 years ago for about $4.20 ... in about June 2007 I could have sold it for $107.00, and it had paid me about a dime dividend in the beginning, that grew to $3.48 in the fall of '07, which in Canada is taxed at a low rate.

Now, due to the economic troubles and their being involved directly in the stinky mortgage game in the U.S. ... the stock is under $50.00 (was under $40.00 in late Feb.) but I'm not about to sell. Wasn't about to, at $107.00, as it had doubled 4.5 times or so ... but now it's doubled 3.3 times or so.

That wouldn't have happened if I'd put that money into the bank.

What's better, long term, than putting our money into the bank?


I'm considering buying more Canadian bank shares (but not that bank) as some international agencies are saying that the Canadian banking system is about the safest in the world, right now ... and paying 5 - 10% dividend.

Some oil patch stuff, after price correction, is paying over 20% (not dividend), these days (and they may be dropping their payout, oil prices being what they have been, lately). When you pay a high price for gas ... it doesn't hurt as much if you own some oil stocks.

Good wishes for increasing wisdom in managing your income and assets. At 80 - I'm still learning.

ole joyful

P.S. Living frugally, by choice, I can save some of my pension income ... so do not need to draw on my assets for living ... and if I die next week ... there'll be tax to pay on unrealized capital gain ... but my kids don't need the money in the near future, either ... and know how to avoid cashing in the asset over the short term.

o j

    Bookmark   March 15, 2009 at 12:24AM
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There seem to be a lot of parallels between the current financial crisis and the one in Japan around 1995.
Japanese interest rates since then have been very low. The most current figure I have for 10 year Japanese government bonds is 1.25% per annum.

What I would do with a sizeable amount of cash coming to me would depend greatly on my intentions for that money.

If I expected to need the principle amount in the not too distant future I would try to get the best interest rate for the period in question along with preserving capital.

If I were looking at income as my main concern I would go for investments which pay a decent income and not be too concerned about current market volatility in the price of that investment.
That said I am a bit rattled by the recent spate of dividend cuts. I recently bought some GE on the understanding that they might cut their dividend by a half. In practice they cut their dividend by a little over two thirds.

I would also be concerned that the Chinese government has been seeking assurances that the US IOUs it is holding will retain value.

    Bookmark   March 15, 2009 at 7:26PM
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If the Chinese are getting worried about the security of their trillion or so of U.S. bonds ... they may be unwilling to lend more money.

Or to be willing to lend it only under conditions, at rates that are substantially more advantageous to them.

If the U.S. can't find more money from their Chinese banker ... where will they go to find a replacement?

And when one loan co. turns you down ... what may be the possibility of finding another lender who may be willing to take a chance on you by lending you good money ... for paper collateral?

And ... what do you figure that they may do with all of those bonds? Maybe use some of them to buy some U.S. companies that they want, to provide them with the resources/expertise that they seek ... at fire sale prices? As Warren Buffet says - great American companies are for sale at heavy discounts.

They're using some of them to buy resource companies and build processing plants in Africa and other resource-rich areas.

Which is what the U.S. used to do ... before they became so enamored of consumption on the one hand. And expensive military adventures on the other.

ole joyful

    Bookmark   March 16, 2009 at 12:37AM
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joyfulguy-"Warren Buffet says that stocks are on sale, and he knows a lot more about how to manage money than I. Some said that when he said that last fall, he turned out to have been wrong, and a few days ago he said that he hadn't been wrong, that stocks were on sale then ... but that he was out by a few months."

In 2003, Buffet referred to derivatives as "weapons of mass destruction" that appear to have been devised by "madmen". His company has lost plenty since the subprime crisis has picked up speed. Over 3 billion in 2001 alone.

Buffet also refers to Hank Paulson as a friend. He lost whatever credibility he had with me when he made this announcement. I could think of a lot of things to call Hank Paulson, but I would never call this corrupt viper a friend for helping our government extort money from those who never borrowed (or misused) it in the first place.

It will be interesting to see how Buffets' affiliation with lying dirt dealers affects his company (and reputation) in the coming years.

A link that might be useful:

Buffett warns on investment 'time bomb'
March 4, 2003

    Bookmark   March 16, 2009 at 11:22AM
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I would probably put in an online high yield savings account. There are several national banks that have FDIC insured savings acct at those levels. GMAC bank has 2.5% savings accounts. I noticed in the last week saving account rates have started dropping rapidily. My online savings (etrade) account dropped from 3.05% to 1.7% in the last week. It was at 4% last year. I got rid of my local National bank savings account and its pitful 0.15% earlier this year. Most online banks I've dealt with have a free transfers to and from external accounts, so they are pretty easy to work with.

    Bookmark   March 17, 2009 at 1:23PM
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