Choosing a CD Term

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sport
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Choosing a CD Term

Post by sport »

I have a CD maturing in about 2 weeks and I plan to replace it with another CD. I have narrowed my choice to three possibilities:
1. 9 months at .25% (1 month penalty for early withdrawal)
2. 29 months at .45% (6 month penalty for early withdrawal)
3. 39 months at .75% ( 12 month penalty for early withdrawal)
Which one of these would you choose?
These are "special rate" CDs so there is no flexibility to choose other terms.
The amount of this CD will be about 33K.
(I know I can get better rates elsewhere, but I want to keep my CDs at one bank, and I already have some there within FDIC limits)
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RickBoglehead
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Re: Choosing a CD Term

Post by RickBoglehead »

Awful rates. Ally No Penalty CD is 0.5%
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sport
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Re: Choosing a CD Term

Post by sport »

RickBoglehead wrote: Wed Jun 23, 2021 5:24 pm Awful rates. Ally No Penalty CD is 0.5%
At my age, I do not wish to complicate my investments any more than they are. The only other CDs I will consider are brokered CDs if the rates are competitive.
mvcjones
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Re: Choosing a CD Term

Post by mvcjones »

I would go with the 9 month rate at 0.25% if it were me. Shorter tie up period, allowing for potential better rate, if rates increase. The difference between interest earned on the various options is not significant on $33K, so I would be more interested in flexibility for future rate options.
Doctor Rhythm
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Re: Choosing a CD Term

Post by Doctor Rhythm »

How much higher are these rates than what you earn in your current savings account? In other words, what’s the bonus you get for reducing liquidity? If you don’t want to open a new account, this is the comparison that I would make.

I get 0.4% with an online savings account, so I would not pick the first two.
Last edited by Doctor Rhythm on Wed Jun 23, 2021 5:57 pm, edited 1 time in total.
delamer
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Re: Choosing a CD Term

Post by delamer »

I wouldn’t tie up my money for an extra 20 months for 0.2 percentage points more interest.

Same with 30 months and 0.5 percentage points.
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wetgear
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Re: Choosing a CD Term

Post by wetgear »

sport wrote: Wed Jun 23, 2021 5:30 pm
RickBoglehead wrote: Wed Jun 23, 2021 5:24 pm Awful rates. Ally No Penalty CD is 0.5%
At my age, I do not wish to complicate my investments any more than they are. The only other CDs I will consider are brokered CDs if the rates are competitive.
Just put it in a HYSA account until rates on CDs rise. Ally also is paying 0.5% in savings accounts accounts currently. If you already have an account at treasury direct the 3.54% current rate for ibonds is the best deal out there for FI currently.
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anon_investor
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Re: Choosing a CD Term

Post by anon_investor »

wetgear wrote: Wed Jun 23, 2021 6:17 pm
sport wrote: Wed Jun 23, 2021 5:30 pm
RickBoglehead wrote: Wed Jun 23, 2021 5:24 pm Awful rates. Ally No Penalty CD is 0.5%
At my age, I do not wish to complicate my investments any more than they are. The only other CDs I will consider are brokered CDs if the rates are competitive.
Just put it in a HYSA account until rates on CDs rise. Ally also is paying 0.5% in savings accounts accounts currently. If you already have an account at treasury direct the 3.54% current rate for ibonds is the best deal out there for FI currently.
+1
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Wiggums
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Re: Choosing a CD Term

Post by Wiggums »

delamer wrote: Wed Jun 23, 2021 5:57 pm I wouldn’t tie up my money for an extra 20 months for 0.2 percentage points more interest.

Same with 30 months and 0.5 percentage points.
The Fed posted a chart at the press conference showing interest rate hikes. More FOMC committee members have models suggesting the a rate hike is likely to come earlier than 2023. As our CDs come due, we are going with short term rateS. We don’t want to lock up our money in multi year CD if we are not compensated appropriately. So it’s going into a HYSA or no penalty CD.
UpperNwGuy
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Re: Choosing a CD Term

Post by UpperNwGuy »

These are terrible rates. Better to use a high yield savings account. You'll get a better rate, and you won't be locked in.
printer86
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Re: Choosing a CD Term

Post by printer86 »

As our CD's mature, I'm parking the funds in our online savings account yielding 0.5%. I plan to revisit the situation later this fall.
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Stinky
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Re: Choosing a CD Term

Post by Stinky »

There's no way that I would lock up money for 29 or 39 months at these horribly low rates.

I'll take a teensy bit less interest and go with the shortest CD.
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tomd37
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Re: Choosing a CD Term

Post by tomd37 »

I am in a similar position as the OP with two CDs maturing in the next 60 days totaling $152K at my CU. Hate to see those 2.25% APY CD rates go, but no choice at this time. My investment options where I currently have checking/savings accounts are the credit union checking at 0.45%, and two online banks high-yield savings accounts at 0.50% and 0.55%.

I think I will just go with the 0.45% in my CU checking account and not worry about the slight differences at the banks. I suspect interest rates will go up in the not too distant future and I can make more appropriate decisions then. :moneybag
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Justin Time
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Re: Choosing a CD Term

Post by Justin Time »

Have you considered a MYGA? The jumbo rate for 3 yrs is about 1.75% (https://fundresearch.fidelity.com/annui ... a-rates/CA). These are not FDIC insured, but you can pick an insurance company that is financially secure. That is what I did when my CD matured.
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sport
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Re: Choosing a CD Term

Post by sport »

Justin Time wrote: Thu Jun 24, 2021 2:24 pm Have you considered a MYGA? The jumbo rate for 3 yrs is about 1.75% (https://fundresearch.fidelity.com/annui ... a-rates/CA). These are not FDIC insured, but you can pick an insurance company that is financially secure. That is what I did when my CD matured.
Thank you for the suggestion. There are a number of ways to get higher yields than the ones I listed. However, as I stated above, I do not want to make my holdings any more complex than they already are. This limits my choices to the bank I am using, or brokered CDs. It's not ideal, but it is what I choose to do.
wetgear
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Re: Choosing a CD Term

Post by wetgear »

sport wrote: Thu Jun 24, 2021 3:11 pm Thank you for the suggestion. There are a number of ways to get higher yields than the ones I listed. However, as I stated above, I do not want to make my holdings any more complex than they already are. This limits my choices to the bank I am using, or brokered CDs. It's not ideal, but it is what I choose to do.
Then maybe just punt and buy the 9 month CD. At least you won't be locked into a crappy rate for too long. Depending on when the other CDs at that bank expire you could maybe consolidate at another bank that provided better rates in the future. This would add short term complexity as you move them over but it would return to the original complexity after completion and hopefully provide you better yields for the rest of your life.
trueblueky
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Re: Choosing a CD Term

Post by trueblueky »

delamer wrote: Wed Jun 23, 2021 5:57 pm I wouldn’t tie up my money for an extra 20 months for 0.2 percentage points more interest.

Same with 30 months and 0.5 percentage points.
There are old posts here that give 0.20 basis points per year as a rule of thumb. If 1-year yields 2%, you should demand 2.2% to go to two years, 2.4% to go to three, etc.

What I like about that rule of thumb is that is doesn't ask what will the Fed do? When? No one knows, and the herd thought on that are already baked into the rates.
tomsense76
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Re: Choosing a CD Term

Post by tomsense76 »

Have you look at I Bonds? These are way more attractive than CDs at this point. Personally if I were to look at locking up some of my money in hope of better returns that would be where I would look (in fact I've already bought my full allotment for this and last year)
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shess
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Re: Choosing a CD Term

Post by shess »

sport wrote: Wed Jun 23, 2021 5:30 pm
RickBoglehead wrote: Wed Jun 23, 2021 5:24 pm Awful rates. Ally No Penalty CD is 0.5%
At my age, I do not wish to complicate my investments any more than they are. The only other CDs I will consider are brokered CDs if the rates are competitive.
I mean, I get you, but I guess it really comes down to what this kind of thing is worth to you.

For a $33k CD, the .5% difference to the 39-month CD is $165/year, the .2% difference to the 29-month CD is $66/year. Simply moving it to an Ally NP CD is worth $82.5/year, and you'll get another %.05 bonus when you roll it over ($16.50/year), and a no-penalty CD is essentially like a locked-in HYSA rate for 11 months.

I gotta say, none of those are very compelling to me. I guess if you really don't think you'll touch the CD for 3 years, might as well get that extra few hundred dollars over the term. The flip side of the yield being low is that if you lose that yield, it's not a huge amount lost, either.

I don't know, can you tell that I've mostly stopped caring about CD rates? I've got a couple 1.7% "special rate" CDs which are going to come to term this fall, and I think I had a 2.8% one term out last winter, and I'm sad. But that's just where we're at, these days.
investmax
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Re: Choosing a CD Term

Post by investmax »

tomsense76 wrote: Thu Jun 24, 2021 7:26 pm Have you look at I Bonds? These are way more attractive than CDs at this point. Personally if I were to look at locking up some of my money in hope of better returns that would be where I would look (in fact I've already bought my full allotment for this and last year)
I agree with this. The rates are very attractive right now. But please note there is a 1 year lock in period with I-Bonds. And there will be a 3 month interest penalty if withdrawn before maturity. However at current I-Bonds interest rates, this will still beat the 9 month CD interest rate being offered above.
Jablean
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Re: Choosing a CD Term

Post by Jablean »

Do you have a ladder of other CDs? If not, split it into $10,000 each. If you do then go for the term that fills in gaps in your ladder. Looks like your rates are better than mine.

My Credit Union promos are currently
6 month .2%
12 month .3
24 month .4
60 month .7
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William Million
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Re: Choosing a CD Term

Post by William Million »

As others have said, Ally at .5% or I bonds. CDs not worth it at moment.
jimkinny
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Re: Choosing a CD Term

Post by jimkinny »

i started using CD's about 10-12 years ago when the difference between a 5 year CD and a similar term Treasury was about 1% or greater. That situation pretty much ended 4-5 years ago. Recently I have been using a HYSA at 0.5% as CDs mature but that is only a short term solution.

The Federal Reserve is still buying bonds but some of the voting members of the FOMC are now hinting that they may formally talk about tapering sometime in the future.

The HYSA may turn out to be a good temporary solution but maybe not if we end up in a situation like a lot of the developed countries with negative rates for the longer term.

A longer term solution may be to use some of the CD money to buy an immediate annuity. These are not for every one but I have read that the importance of the mortality credits increases as interest rates decrease. The payout of course goes down with decreasing interest rates but mortality credits partially compensate for the lower rates.

I am going to wait and see what happens to quantitative easing. In the interim, I am using either a HYSA or a CD in the one year range.
heikejohn1
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Re: Choosing a CD Term

Post by heikejohn1 »

Marcus by Goldman Sachs has an on-line savings account that pays .5%. They also have special CD rates once in a while.
All my emergency fund money is sitting there, collecting a little bit of interest.
PenFed has a savings account that pays .45% (unless they lowered it again)
I don't want to tie up anything, my husband will retire this year & we are piling up cash.
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