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  • CD: Should I or Shouldn't I?

    I have been thinking of investing a portion of my bank account to a Certificate of Deposit, but I want to know the pros (besides higher interest rate dividend if I leave it there to mature) and cons (besides I can't touch the money until it matures).

    Also, in this dire economic period, is it wise?
    Beijing 8-08-08 to 8-24-08

    Tiananmen Square 4-15-89 to 6-04-89

  • #2
    Re: CD: Should I or Shouldn't I?

    Originally posted by Random View Post
    I have been thinking of investing a portion of my bank account to a Certificate of Deposit, but I want to know the pros (besides higher interest rate dividend if I leave it there to mature) and cons (besides I can't touch the money until it matures).

    Also, in this dire economic period, is it wise?

    That's the only thing my father would ever invest in. Very safe, no loss of principal (if you make sure it's covered by the FDIC.) I vote do it. Your time in the CD depends on how long you can "miss the money;" it's easy to research rates and holding times. In this market, the pros definitely outweigh the cons.

    (Disclaimer--opinion of one whose retirement accounts are in the tank and is upset over loss of principal.)

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    • #3
      Re: CD: Should I or Shouldn't I?

      Well you could do multiple CD's of various lengths, like putting $1000 for a 3 month period, another $1000 for a 6 month period, another $1000 either a 1 year or 2 year period. Also you don't have to put all of your money in a CD. Just put some away and keep the rest for whatever rainy day comes along.

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      • #4
        Re: CD: Should I or Shouldn't I?

        Helen has a good suggestion. It's called laddering. Also, keep in mind that the insurance increase to $250K by the FDIC ends the end of this year. Then it's back to $100K. We should all have that problem to worry about, huh?!!!!

        I, too, would hold enough in liquid assets to cover the period 'til your earliest CD matures. And, I wouldn't invest in a long term CD because the interest rate just might hit the up button between now and it's maturity date. You won't be gambling any money investing in a CD. You'll only be gambling on the interest rate...iow, will it increase before your CDs mature. We could care less if it decreases EXCEPT, when the CD matures, you'll probably be faced with investing in a lower rate. Too bad we're not all mind readers!

        And, I have the same disclaimer as Cyleet.

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        • #5
          Re: CD: Should I or Shouldn't I?

          Thank you for your commiseration, TS. As you said, I would love to have the problem of what to do with a chunk of money. Ah, well, good health and the ability to pay the bills helps.

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          • #6
            Re: CD: Should I or Shouldn't I?

            Hmm. Multiple CDs. I'll think about that.

            So, what are the benefits and drawbacks between short-term CD (e.g, 3-month) and long-term CD (e.g., 24-month)?
            Beijing 8-08-08 to 8-24-08

            Tiananmen Square 4-15-89 to 6-04-89

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            • #7
              Re: CD: Should I or Shouldn't I?

              Shorter term CD have a lower interest rates than the longer term ones. More paper work hassles if you keep on doing short term CD's on an on-going basis.

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              • #8
                Re: CD: Should I or Shouldn't I?

                Originally posted by Random View Post
                So, what are the benefits and drawbacks between short-term CD (e.g, 3-month) and long-term CD (e.g., 24-month)?
                I echo the comments of both Helen and Tutu. "Laddering" is the best strategy in a volatile market. The drawback to a 3 month CD is that you will probably get a lower interest rate than the 24 month CD. However, you want to even out your gains and/or losses over a longer period of time which is referred to "dollar cost averaging." When your 3 month CD matures, look around again for the best rate.

                Insider's tip: purchase your CDs from 3 star or higher rated banks. Consult bankrate.com for the CD rates and bank ratings.

                (this is good therapy for me - I need to get back in the saddle)
                Peace, Love, and Local Grindz

                People who form FIRM opinions with so little knowledge only pretend to be open-minded. They select their facts like food from a buffet. David R. Dow

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                • #9
                  Re: CD: Should I or Shouldn't I?

                  Originally posted by matapule View Post
                  [...]
                  Insider's tip: purchase your CDs from 3 star or higher rated banks. Consult bankrate.com for the CD rates and bank ratings.

                  (this is good therapy for me - I need to get back in the saddle)
                  Good to see you back but make sure you grieve, no matter how long it takes...ya hear!!!

                  I've opened all my CD accounts based on info from bankrate.com and all accounts were opened on the mainland via the internet. I currently have one that matures in Oct. of this year. It's 4.2%. It's gonna hurt to give up that rate! And, to think, just 15 months ago I was getting 5.25% on a money market account...an FDIC insured, no risk MMA! Waaaaaaah!!!

                  I'd better be careful or this thread might depress the h3!! outta me!

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                  • #10
                    Re: CD: Should I or Shouldn't I?

                    Originally posted by Random View Post
                    Hmm. Multiple CDs. I'll think about that.
                    So, what are the benefits and drawbacks between short-term CD (e.g, 3-month) and long-term CD (e.g., 24-month)?
                    A three-month CD forces you to think about any potentially impulsive spending decisions.

                    A 24-month CD forces you to think about them for a really long time.

                    The shorter-term CDs allow you to match your spending to your timeline. Either pick the term for the date you need the money, or use the shorter terms to build a longer-term ladder a few months at a time. Your investment is insured against loss and usually doesn't get hit too hard by inflation. The CD terms also allow you to bet which way interest rates are going, although this is about as successful as timing the stock market.

                    You can also "chase yield" with your emergency cash stash by putting it in a CD. Each year that you don't have to break the CD is a few dollars more in your pocket. If you needed the money for the emergency then even after the early-redemption penalty you probably still earned more money than you would have in a savings or checking account.

                    Longer-term CDs may offer a better rate, but the early-redemption penalties can be higher. Redeeming a one-year CD before its time may only lose a month or two of dividends, but breaking a five-year CD can cost an entire year of dividends.

                    Bargains can be found when the financial institutions try to keep a certain average length to their portfolios of CDs. If they get overweighted in one area (too many sales or too many early redemptions) then for a few weeks they may offer a sale on a certain term at a better rate.

                    In retirement we've built a three-year CD ladder. Each year of the ladder is a year's spending beyond what's covered by my pension. In bull-market years, we sell equity shares for spending cash and roll over the CD ladder. In bear years we have a three-year cash stash to consume before having to make a decision on what equities to sell. We started retirement with a two-year CD ladder but there were several years when we were able to cut expenses and bulk up the ladder without messing with our asset allocation.

                    BankRate.com has the nation's best summary of rates & terms, but you might want to keep an eye on local banks & credit unions. Sometimes their specials aren't widely advertised or are only up for a short time and don't make it to the national list.

                    BankRate.com also has a great series of articles on the financial basics which may give you more ideas on using a CD ladder: http://www.bankrate.com/dls/green/in...basics-toc.asp

                    ... and the Dollar Stretcher (stretcher.com) also occasionally covers them in their e-mail newsletters.
                    Last edited by Nords; March 7, 2009, 05:48 AM.
                    Youth may be wasted on the young, but retirement is wasted on the old.
                    Live like you're dying, invest like you're immortal.
                    We grow old if we stop playing, but it's never too late to have a happy childhood.
                    Forget about who you were-- discover who you are.

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                    • #11
                      Re: CD: Should I or Shouldn't I?

                      Originally posted by Nords View Post
                      [...] you might want to keep an eye on local banks & credit unions. Sometimes their specials aren't widely advertised or are only up for a short time and don't make it to the national list. [...]
                      As an example, albeit not a CD example, Central Pacific Bank currently offers a 3.5% checking account and a 2.5% savings account. Of course, there are conditions that must be met. These rates were reduced just a few days ago from 4% and 3%. Currently CPB offers a 24 month CD at 2.25%.

                      And, speaking of bankrate.com...I just love that site!!!
                      Last edited by tutusue; March 7, 2009, 08:09 AM. Reason: added CPB CD info

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