Posted: 2/17/2010 6:49:34 AM EDT
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Ok, first, this money is going to stay in a CD, im not moving it into anything unless there was 100% guarantee for better rates and security. Anyways. here are my options
5 Years @ 3.00% 7 Years @ 4.00% This is compounded interests as well. Obviously the 4% will draw more interests, but itll tie it up longer too. What are the odds of interests rates going UP after the 5 years, yea yea, I can hear the laughter now. Do I want to tie up money for 7 years? This is my rainy day emergency funds if I need it, but luckily I can just let it sit for now. While this seems simple, Im just making sure Im not missing something or overlooked something, my current CD expires first of March, so I need to make a discussion. Its thru a very good Credit Union so not too worried about security of it. |
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I would not tie up my emergency fund for that long. When you need it you don't want hassles or penalties, needs to be pretty liquid.
Consider a bond fund or money market. I don't consider my emergency funds an investment, I treat it more as insurance. I put mine (~6mos living expenses) in a Govt Securities fund and forgot about it. It has managed a decent return over the last 10yrs, not stellar, but met my goals of preserving principal and ready access. |
| Well, I should say this is my 2nd tier rainy day money. Ive got money in savings that is my true emergency money. The CD money was just some place to put money I had saved, and being in a CD I had a little less access to it so I know I wouldnt spend it. Its more of a retirement account that shouldnt depreciate like stocks and 401k can. |
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I looked at that and need to study it sum more. But CDs being compounded interests, wouldnt you be missing out by not having a larger lump sum in one CD? It would collect more interests over the long haul. |
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Quoted:
I looked at that and need to study it sum more. But CDs being compounded interests, wouldnt you be missing out by not having a larger lump sum in one CD? It would collect more interests over the long haul. In short: no. You don't lose money by having a CD ladder set up. That dollar is still earning interest. And in a CD ladder, (usually) the longer term CDs have a higher interest rate - as you've discovered first hand. That dollar made in interest by a 6 month CD will still earn interest in a 1 year CD. In fact, it makes more due to the time value of money. The over all value of an account isn't what makes compounding interest so fantastic - it is that you will earn interest off of the money generated in that account. You don't lose, but actually gain, by rolling the interest from a shorter account into a longer account. However, there was a time in 2007 before everything went to hell when short term interest rates sat right around 5.15% and long term were at 5%. But that was a very odd occurence. |
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Yea, I did the math, ladder CDs cost me more money than if I just stick the whole thing for 5 years.
And I just dont see CD rates going UP any time soon. they have slowly been going down. I really did the math and looked at the ladder deal, it is a neat idea and I understand its reasoning, it only ties you money up for short periods |
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Personally, Im not tying up any money for multiple years for 3-4%. I just have my cash sitting in an ING Orange acct. makes very little, maybe 1.15% right now. Ill take a small hit to be liquid if something good comes along.
And with laddering, you probably wont get any more than ING on the shorter terms anyways, so if you are dead set on it, put half of it in the 3 year. My humble opinion. |
Ugh..Ive got 4 days more or less to decide otherwise Im stuck rolling it at 3% for 5 years or I just put it in savings til I figure it out. I was thinking of adding to it and doing the 4% for 7years, but that ties it up. But the interest would be pretty good. I guess the big question is this, is this the best that interests will ever be? I mean, when I started this CD it was at 6% 15 years ago, and 5 years ago (my current rate) is 4.64% for a 5 year and now its 3% for a 5 year. And ive checked other CUs in my area, they best they have is in the 1-2% range, very sad if you ask me. So, I just dont know. Im thinking of just rolling what I have into another 5 year at 3% and just hanging onto the rest of my savings for that rainy day. Maybe Ill roll the CD over and then take the rest of the savings and try the ladder approach and then at the end of it, see how I far. 
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Quoted:
I guess the big question is this, is this the best that interests will ever be? Let me check my crystal ball, and get back to you... Seriously, if I knew the answer to that question, I'd quit my day job. 
That said, interest rates across the board are at historic lows - data available at http://www.federalreserve.gov/releases/H15/data.htm. I'm not investing in anything tied to a fixed long-term rate right now. |
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Hmmm, thanks for that chart, that may be the single deciding factor for me. It was interesting to see how year to year there were some big changes and some small ones. I had thought that alot of the interest rates were slow declines, etc. but I see there are some major jumps (2-3% IMO is a major jump). Im thinking of just going year to year now and then if it jumps up some, reinvest into the higher rates. Id hate to tie up the money for 5-7years and miss one of the jumps and then be where Im at with lowered interests when I may have been able to reinvest higher, earlier.
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good advice |