Talk about CDs here not in CD Thread.

Great Idea and would be even better if we could get mods to put this as a sticky right under the CD rate thread. I agree that we don't need to clutter up that thread with discussions about CDs but there is so much more to finding the right CD than just it's rate

Continuing my disscution with daschs in this thread...

dasachs said:Good points, mhesidence. I respectfully disagree with your conclusions however so can we bat this around a little further ?

There are some respectable observers - including the Fed - who think the economy will slow early next year or later this year. Some futures markets are predicting a cut in Fed rates in the first half of next year.

So there is a reasonable chance of Fed rates declining early next year or late this year.

Before this happens, once it becomes clear the Fed has paused, with a chance they may cut in the near-future
(< 6 months), history says that often market rates start declining.

I conclude that there is a non-negligible chance that CD rates may start declining by the end of the year.

And, historically, Fed rates change significantly over time frames of 6 months to a year most of the time. It is relatively rare when Fed funds remain constant for a year or more.

These kinds of observations lead me to the strategy of locking in historically high rates (like ~ 6%) when they occur (like now) for a long time, and then paying penalties to secure even higher rates if rates go up significantly further.

For example, if rates go up by 1%, if your penalty is 3 months interest, you make it up in about one year; if the penalty is 6 months, you make it up in about two years. After the make-up period, you start to make more money over the remainder of the duration of the new CD.

If rates go up by 2%, cut the make-up periods in half.

If you start to view penalties as a neccessary part of 'doing business', you avoid the huge problem of having to pick the precise times that rates peak. And with long-duration CDs and a willingness to pay penalties, you aren't forced to renew at times when rates may be low.

I agree the economy could slow, however the feds primary goal is to fight inflation. Thus it looks like two more rate hikes end of this month and again in Aug. I would think keeping money liquid (~5% savings account) or getting into very good CU cd rate if you can find one would be good short term. Then wait until closer to Aug. to see if its worth locking in a long term CD.

I would guess think that our two methods may depend upon exact penalties extracted for breaking a CD. I used 90 days as an example, not sure what typical is for a long term CD. It probably varies widely.

Using this rate chaser calculator plug in 5% fo r current apr and 6% for new apr and 90 days interest loss. "break even" is 450 days. However that doesn't consider getting a shorter term keeping money liquid for now won't have ANY lost days of interest. So 450+90, well a little less than 90 since the liquid rate is slightly lower. Right?

OTOH if rates have peaked, then you've locked in a higher rate for 5? years. While someone waiting for a peak might get half a point less? I guess it depends upon timing and quick someone jumps once the rates start to drop.

Anyway 5 years is too long for me, execpt for maybe my IRA and that money can stay in stock market for now (well I'm all cash right now but that's because the market has been sucking lately and I stopped out of everything with out too much of a drop).

moshulu said:Am reposting from the original CD thread- but let me know if I misunderstood the intent of this new thread.

The 5.61% 7 month internet rate on World's website sounds good for those of us not near a branch. Has anyone had recent experience with their internet accounts?

(hoping geo123 sees this )

I don't have any experience with World but right now 6 month T-Bills are at 5.33% and if you pay 5% in state income tax that works out to an equivalent 5.61% (obviously greater than 5.61% if you pay more). TreasuryDirect's website is very good and people swear by their experience buying in this route.

Apologies if this doesn't belong in the CD thread. I just thought I throw in a just as safe alternative for the product you were considering.

AnonymousCoward said:(hoping geo123 sees this )Geo123's sees it, indeed. I am still waiting for a response to my PM, btw

World is one of the better banks out there -- they do what they promise and their promotional rates are quite good. The disadvantages of dealing with World are as follows though: they initially pull your credit, require a fairly annoying CD application and offer the best rates for new money deposits only (so you won't get good renewal rates), only accept deposits by check (which means that you lose interest while the money sits in your checking account). Further, you cannot instruct them to close the CD at maturity until you are within 30 days of your maturity date -- they'll otherwise disregard your instructions and automatically renew your CD at a ridiculously low rate. At maturity, you have to wait for a check from them, which means that your money won't be earning any interest during that period.

As AnonymousCoward posted above, T-bills on the other hand offer the following advantages:
1)No paperwork to fill out (saves you time);
2)No lost interest since the money is ACHed in and out of ANY account with ANY bank out there (your t-bill starts earning interest the day the treasury initiates the withdrawal even though the money isn't withdrawn from your account for a day or so);
3)No concerns over remembering to redeem the CD at maturity to avoid automatic renewals at inferior rates (matured t-bills are redeemed automatically);
4)you can open a t-bill with proceeds from one account and have the matured proceeds deposited into another;
5)state income tax exemption combined with very competitive yields beats the yields on most 6-month CD's out there.

Edit: grammar, spelling. I just can't construct normal sentences today for some reason.

scott1961 said:geo123 said:World is one of the better banks out there -- they do what they promise and their promotional rates are quite good. The disadvantages of dealing with World are as follows though: they initially pull your credit, require a fairly annoying CD application and offer the best rates for new money deposits only (so you won't get good renewal rates), only accept deposits by check (which means that you lose interest while the money sits in your checking account). Further, you cannot instruct them to close the CD at maturity until you do so within 30 days prior to maturity

No credit pull done on me and very simple application took maybe 3 minutes. I like funding by check, It took 3 days for World to pull my funds so I made about $40 in overlapping interest. You are starting to sound like a T-Bill salesman

1) Wow, I wish I had ~$93,000 to throw around.
2) Won't you spend that $40 paying for a wire back to you or you'll give up that amount in lost interest while they mail you a check?

Oh, by the way, World's CD application may only take you 3 minutes PER APPLICATION. Whenever I open CD's, I always split them up into multiple $10K ones so that if something happens and I suddenly need the money, I only have to break one small CD. The disadvantage of this approach, of course, is that for, let's say, $100K it takes you 30 minutes just to complete all the &^$&^# applications!

geo123 said:

You'll make overlapping interest with t-bills as well, since the money isn't withdrawn from your account for at least a day or two. Since even high yield checking accounts still earn lower rates that MM/savings account, you are still losing interest by keeping the money in those.

Not my high yeild checking, is 5.21% now and will be over 5.40% come 7/1
geo123 said:
Most importantly, if the yields are similar, the amount of hassle involved with CD's vs. absolutely no hassle involved with t-bills (you initiate a purchase and literally forget about it until the money is automatically credited back to the account) makes the choice quite easy. Perhaps I should petition the US Treasury to start paying me commission for all this advertising?
I find no hassle in doing CDs, After doing a couple of hundred of them over the years I guess I have gotten pretty good at it. Also you forget one benefit that a CD gives over T-Bills. Many do them so they can take the interest monthly to supplement income. I even do that on some year+ ones . It makes it seem like you are not tying your money up for a long period when you get that check or ACH transfer every month

AnonymousCoward said:


2) Won't you spend that $40 paying for a wire back to you or you'll give up that amount in lost interest while they mail you a check?
Will pay about $20 for either wire or FED X. Good thing is if I have to wire my bank does not charge me for incoming. I will not lose a single day of interest