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Thread: CD question

  1. #1
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    CD question

    Stupid question for you financial wizards. I'm kinda new to the whole investment world. Previously, I was always somewhat in debt due to some heavy loans I was paying on. I finally got everything paid off, and am now interested in doing more than just my 403B. I was wondering about CD's. My real question is this:

    Is there any advantage over a long term CD (60 mos) over a short term CD (6-9 mos)? I have noticed that the 6 and 9 month CD's have higher APR's than the 60 month CD's. Is it simply the stability offered by the 60 month CD's over the possible change in interest rates that makes a long term CD better? Or, should I lock in at the higher rate for now, and just chase the highest rate in the future?
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  2. #2
    Join Date
    Jan 2004
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    Quote Originally Posted by snakespit View Post
    Stupid question for you financial wizards. I'm kinda new to the whole investment world. Previously, I was always somewhat in debt due to some heavy loans I was paying on. I finally got everything paid off, and am now interested in doing more than just my 403B. I was wondering about CD's. My real question is this:

    Is there any advantage over a long term CD (60 mos) over a short term CD (6-9 mos)? I have noticed that the 6 and 9 month CD's have higher APR's than the 60 month CD's. Is it simply the stability offered by the 60 month CD's over the possible change in interest rates that makes a long term CD better? Or, should I lock in at the higher rate for now, and just chase the highest rate in the future?
    The 60 month is paying less than the shorter term CDs because we have an inverted yield curve right now. Go with the highest rate you can get. It is worthwhile to shop around for CD's. You not only need to consider the APR, but the APY as well. The APY is the yearly yield of the CD in question and can change DRASTICALLY depending on how the CD is compounded. For example, a CD paying 5% that is only compounded every 6 months ends up with a lower APY than a 3.5% CD that is compounded monthly.

    IMO....I would be careful about locking up money in a CD right now. The dollar just blew through 2 resistance levels to hit an all time low against the euro and inflation is accelerating. When you figure an effective inflationary rate of 3.5-4.5%, CD yields are not looking so hot.

    People generally consider a CD to be a safe harbor investment. Unfortunatly is is not all that safe in the face of high interest rates. If you lock up your money at 4.5% for 12 months and inflation continues to expand, you will end up loosing money.

    A moneymarket account may be a better idea given current conditions. While it may sound really stupid, the paypal moneymarket account has been a decent performer. Current return is running north of 5% (weekly average). That is pretty good considering that you have instant access to your money and there is no minimum balance. It is managed by Barclays, which is a respectable firm (IIRC Barclays manages about 1.5 trillion in assets).

    Again, I know that it sounds stupid to suggest paypal as an investment vehicle, but their money market account seems to yield pretty consistently, most people already have a paypal account, and if not they can be set up pretty quickly. Also, you get 1.5% back when you use the paypal debit card, which is a nice bonus.
    If ye love wealth greater than liberty, the tranquility of servitude greater than the animating contest for freedom, go home from us in peace. We seek not your counsel, nor your arms. Crouch down and lick the hand that feeds you; May your chains set lightly upon you, and may posterity forget that ye were our countrymen. —Samuel Adams

  3. #3
    huckleberry Guest
    Quote Originally Posted by daewoo View Post
    The 60 month is paying less than the shorter term CDs because we have an inverted yield curve right now. Go with the highest rate you can get. It is worthwhile to shop around for CD's. You not only need to consider the APR, but the APY as well. The APY is the yearly yield of the CD in question and can change DRASTICALLY depending on how the CD is compounded. For example, a CD paying 5% that is only compounded every 6 months ends up with a lower APY than a 3.5% CD that is compounded monthly.

    IMO....I would be careful about locking up money in a CD right now. The dollar just blew through 2 resistance levels to hit an all time low against the euro and inflation is accelerating. When you figure an effective inflationary rate of 3.5-4.5%, CD yields are not looking so hot.

    People generally consider a CD to be a safe harbor investment. Unfortunatly is is not all that safe in the face of high interest rates. If you lock up your money at 4.5% for 12 months and inflation continues to expand, you will end up loosing money.

    A moneymarket account may be a better idea given current conditions. While it may sound really stupid, the paypal moneymarket account has been a decent performer. Current return is running north of 5% (weekly average). That is pretty good considering that you have instant access to your money and there is no minimum balance. It is managed by Barclays, which is a respectable firm (IIRC Barclays manages about 1.5 trillion in assets).

    Again, I know that it sounds stupid to suggest paypal as an investment vehicle, but their money market account seems to yield pretty consistently, most people already have a paypal account, and if not they can be set up pretty quickly. Also, you get 1.5% back when you use the paypal debit card, which is a nice bonus.
    This sounds like good advice. I would also add that you should consider an IRA for you and your significant other or even education savings accounts.

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