Comments on: CDs – Not just for listening pleasure!

By: Highest CD Rates

Highest CD Rates — Sun, 22 Apr 2007 03:32:00 +0000

Hi,
We are running a cd rates blog at our website where ppl can sign in and post good cd rates at local credit unions etc.

Please provide your thoughts if you like. Thanks.

By: Debbie

Debbie — Tue, 28 Mar 2006 05:11:00 +0000

When I first starting having extra money to invest, CDs were a great way to earn a good interest rate. One-year CDs paid more than checking accounts, savings bonds, and money market accounts. And if occasionally you had to withdraw the money early and pay the “substantial penalty for early withdrawal” (which turns out to be no more than the interest you’ve earned so far), you’re still generally ahead.

Now the rates are barely more than savings accounts and savings accounts pay virtually nothing. Now online money market accounts (like ING Direct) are a much better deal–good interest and no penalties and no need for laddering. You just link it to your regular savings or checking account and transfer money between the two in a couple of days. This is what I now use for the money I’m saving for emergencies and other short-term goals.

By: Anonymous

Anonymous — Tue, 21 Mar 2006 00:04:00 +0000

remeber to consider the tax consequences of any investments you make. Its true that CDs are risk-free, but a typical CD will be taxed at your normal tax rate when it matures, meaning at the current yields the take home is pretty poor. If the yield is 4%, and your tax rate is 30%, your take home is 4% x .7. And like previously mentioned, you would like to outpace inflation, or your efforts at saving/investing are to no avail.

Certainly a better thing to do before getting into CDs is your 401k plan, which may also have an employer matching contribution ("free money"). And will reduce your taxable base by the amount you contribute, for a double win. And most importantly, it will grow uninterrupted by tax hits.

Secondly, you may consider long term stock market investing, especially thru no-low, low fee, broad based index funds, like ones offered by Vanguard. Don't plan on touching this money for 10+ years, but over such a long time you can generally grow in a 8-12% range, and your gains are tax efficient and when you divest you will pay only Long-Term capital gains since you held for longer than an year. Long term cap gains are currently in the 5-15% range, and much lower than your general tax bracket. You can further minimize your investment risk by applying "dollar cost averaging" by adding a few $$ to the fund each paycheck. Check out sometime like the Vanguard Total Market INdex fund. No load w/ an expense ratio of one of the lowest in the industry ~.18%.

If you still have money left over you want to keep it highly liquid, its hard to justify bothers with CD when there are money market accounts that come very close in rates (ING, HSBC) without the lockup time.

Good job on the blog and keep saving!

-s

By: azra

azra — Wed, 04 Jan 2006 03:54:00 +0000

Check out ingdirect.com. They’ve got really got rates on their CDs, their APY is variable and is better than average. Unlike what a previous poster {Neville} said, when you put in say $2500 like I did, your return after 9 months is $2578, not bad huh?
I’m a student so I don’t make much, but even their regular savings account has better rates than most banks. Either way, i’d rather my money work for me while I don’t use it rather than just lie useless.

By: Anonymous

Anonymous — Mon, 25 Jul 2005 15:41:00 +0000

A ladder is a series of (usually) 5 CDs opened at the same time, probably for the same amount, but with different maturity periods. I think the most common is to open a 1year, 2year, 3year, 4year, and 5year (with the 5year having the highest yield, usually).

When the 1year comes to term, reinvest the money in a 5year. Same with the 2year, 3year, and 4year.

So then, after 4 years, you have 5 CDs all earning a high return (since they are all "long-term"), but coming due every year, so not all your money is locked away for the full 5year period.

By: Nicole

Nicole — Thu, 12 May 2005 03:56:00 +0000

What is a CD ladder? I’d like to learn more about it and maybe post on the site about it.

By: Anonymous

Anonymous — Sun, 03 Apr 2005 17:39:00 +0000

Hmmm, all reasonable advice.

I have about 12K in my emergency account.
Far short of where I want it to be, but with
the extra income I bring in along with the
direct saving I do, it should double
annually.

I just built a CD ladder w/ the 1 year rung yielding about 2.5% (this was before
the Fed upped rates on the 22nd). I'm
thinking of building another ladder with
the higher rates. All of this is with one
of my credit unions. No sense is opening
up a bunch of scattered, small accounts.

I'm targeting 5K in cash available for
emergencies in the immediate future, and
growing that ratio in time.

My calculations show that short term
ladders with small denomination CDs (1K
seems to be optimal, but I'll bet 2.5K
would work as well if you have the funds)
work best. YMMV. I need to code up that
CD ladder calculator I've been thinking
about. All the ones I've found online seem
too focused on a particular bank or
institutions products (BofA's is kinda
nice, but obviously a bit biased; I hated
BankRate's).

By: wannabe_ceo

wannabe_ceo — Wed, 30 Mar 2005 22:49:00 +0000

I’ve been thinking about laddering CDs myself. So many options!

By: Caitlin

Caitlin — Wed, 23 Mar 2005 14:08:00 +0000

CDs can be a good safe investment (particularly in a ladder), but that WaMu rate is kinda “eh”. Emigrant is paying 3.25% APY and your money is entirely liquid. Even ING’s 1 yr CD is 3.4%

Keep your eyes out for the highest rate, the “average” can be deceptively low. Today’s highest 1yr rate is 3.9 from Corus Bank for example.

Happy hunting

By: Anonymous

Anonymous — Wed, 23 Mar 2005 04:26:00 +0000

Don’t bother! You’ll barely beat inflation. You can find a money market fund that will offer a similar rate and you won’t be penalized if you need your emergecy funds for an emergency.