Are CDs still attractive to You?

dtconroe

This thread is directed toward those who currently own CDs. I have used CDs extensively for almost 2 years now, watched CD rates go over 5%, but now CD rates are dropping. As my my CDs mature, I am hearing a lot of chatter about why it is not a good idea, to continue investing in CDs, because stocks and bond options are pretty much guaranteed to make more than CDs. In the last several weeks, I have chosen to buy some bank CDs at my personal bank for 5.25%, but my brokerage CDs are selling in the 4% ranges now, because the FEDs projected rate cuts.

Are any "current" CD owners still buying CDs, with cash that becomes available to you, from maturing CDs or other cash sources?

Ben

I just put the $ from credit union CDs that matured in November and December into 12 month CDs at 5.25%. The CD returns will balance any possible losses in the bond and stock markets.

hank

”This thread is directed toward those who currently own CDs.”

I’ll stay out of this discussion than. Just wanted to say that it’s nice to see CDs receiving some attention on the board.

larryB

I have found attractive rates at my favorite on line banks but sometime soon that will be over too. My CD addiction delayed me from age related simplification of our assets but one fund solutions are looking more attractive as falling rates will be positive for bond heavy allocation funds.

Tarwheel

Yes and no. I bought some US Treasuries this week that are maturing in 3-6 months with yields about 5.3%. I consider them comparable to CDs with certain advantages. My CD ladders will have issues maturing every 6 months or so over the next 5 years. I’ll decide where to reinvest as they mature. If CD yields stay above 4%, I’ll probably continue to buy them, but might put some of the money in bond funds. If Treasury yields are comparable to CDs, I’ll probably keep buying them too. Their liquidity and tax advantages are pluses.

MikeM

I'll take the added risk and add that $ into bond funds and into balanced funds - both of which I've been buying for the past few months. I'm not opposed to keeping money in the Schwab MM at 5.27% either. MMs seem to be holding up better than short term CDs and Ts. MMs will inevitably drop too, but nice return and flexibility for now.

I have had a couple gov. agency bonds get called recently. At 6%+, I new they weren't going to last long, but it was nice while it lasted.

Crash

5.3% CDs STILL available at Navy Fed (with restriction on amount) and Northeast Bank ($5k minimum.). There are surely others.
YES, they look attractive. But no, I have not taken a bite. That might be the last base I try to cover, in constructing the portfolio to be the way I want it.

Rossby

As a Super Senior, CDs are very important in our savings and planning.
They offer security and liquidity and beat the low savings offered at our local CU. We have about 20% in Mutual funds and that makes us over extended if one uses the 100-age rule.
A change if our life style, Assisted Living, may be around the corner.
To make things simple for my wife and our heirs we have investments in only 2 firms. I am shortening our CD ladders to one year with many rungs.
The stability of the bank offering the CD is more important than a few tenths of a % in the interest rate.
Our pension and SS income is well greater then our current living expenses but would be gobbled up in a cared living facility.
I miss the “Investing After Retirement” forum on the M* of the olden days.

dtconroe

Tarwheel said:

Yes and no. I bought some US Treasuries this week that are maturing in 3-6 months with yields about 5.3%. I consider them comparable to CDs with certain advantages. My CD ladders will have issues maturing every 6 months or so over the next 5 years. I’ll decide where to reinvest as they mature. If CD yields stay above 4%, I’ll probably continue to buy them, but might put some of the money in bond funds. If Treasury yields are comparable to CDs, I’ll probably keep buying them too. Their liquidity and tax advantages are pluses.

Tarwheel, you bring up a very relevant consideration--how low must CD rates fall, before they will no longer be considered for your portfolio. You have chosen 4%, and I am wondering what others have set as their "floor" before you start moving money to a different kind of asset. I thought 4% as the floor as well, especially since longer term brokerage CDs are already dipping below 4%, although that could be just a year end dip.

dtconroe

Rossby said:

As a Super Senior, CDs are very important in our savings and planning.
They offer security and liquidity and beat the low savings offered at our local CU. We have about 20% in Mutual funds and that makes us over extended if one uses the 100-age rule.
A change if our life style, Assisted Living, may be around the corner.
To make things simple for my wife and our heirs we have investments in only 2 firms. I am shortening our CD ladders to one year with many rungs.
The stability of the bank offering the CD is more important than a few tenths of a % in the interest rate.
Our pension and SS income is well greater then our current living expenses but would be gobbled up in a cared living facility.
I miss the “Investing After Retirement” forum on the M* of the olden days.

Rossby, I am also focused on my age, and my desire to avoid unnecessay stress in protecting my retirement assets. I keep hearing these statements about how investors think they can "guarantee" that other asset classes will make much more than CDs, but I keep experiencing market changing events that are "unique" that cause unexpected changes in total return reality. I am about to turn 76, starting to experience noticeable changes in my health conditions, starting to think about potential changes in my living options, etc. I have no idea what the age of each poster is, who are making comments, but younger persons can look at this thread as just a money making accumulation decision, while they go to work each day, and enjoy a variety of employment fringe benefits. I no longer work, and I must adjust my investing decisions based on the absence of employment pensions and accommodations for age related investing decisions. Everyone has a unique set of life circumstances that must be considered what risk you are able to take.

dtconroe

larryB said:

I have found attractive rates at my favorite on line banks but sometime soon that will be over too. My CD addiction delayed me from age related simplification of our assets but one fund solutions are looking more attractive as falling rates will be positive for bond heavy allocation funds.

larryB, I agree that I can find many bank/credit union CDs, that are well above 5%. I consider many of them "promotional" to get me to put money into them, but may have to consider liquidating some of them when the CD matures, and then move them somewhere else. I am now focused on my personal bank, getting up to the FDIC max, but may consider putting a chunk of money in other local banks/credit unions as well. I am willing to do that with my taxable money, but do not want to that with IRA assets.

dtconroe

hank said:

”This thread is directed toward those who currently own CDs.”

I’ll stay out of this discussion than. Just wanted to say that it’s nice to see CDs receiving some attention on the board.

hank, thanks for being respectful of the intent of this thread. I know many posters/investors have avoided CDs, and that is fine. My hope is that those who own CDs will share their personal criteria of whether to continue CDs or not, and the criteria they are using for making that decision.

larryB

@DT. thanks for sharing your thoughts on how you use CD’s. I think an important point to remember is that “personal finance “ is just that. It’s very personal and we are all on unique paths.

dtconroe

larryB said:

@DT. thanks for sharing your thoughts on how youuse CD’s. I think an important point to remember is that “personal finance “ is just th at. It’s very personal and we are all on unique paths.

Absolutely--the difference between CD rates from my brokerage, and promotional CD rates from local banks/credit unions, is pretty significant, so it may be worth the inconvenience for awhile.

Derf

Rossby commented, "Investing After Retirement” forum on the M* of the olden days.
It seems to me more retirees commenting here than non-retirees. Maybe I'm off base ?

CD's at 3% would be my cut off point. Well , guess I'll have to wait & see if that will hold true !
Happy New Year to All, Derf

larryB

@Derf. That 3% cut off makes sense unless MM and on line savings are paying .15% and the equity allocation is maxed. Remember not long ago the likely suspects included preferred etf’s,,,, bank loan etf’s and junk,,,, I mean high yield. At some point risk becomes just too risky. And then 3% seems not so bad.

msf

I-bonds are an option especially for people in high tax states, who don't need the cash flow and are looking for a 4% CD (taxable) yield. Assuming a long term inflation rate of 2.5% and assuming a state income tax rate of 5%, the current I-bonds (1.3% + inflation) are roughly equivalent to a 4% CD.

That's because the 5% tax clips 0.2% of the 4% CD yield, leaving 3.8%. That's about what you get with the I-bond assuming 2.5% inflation. If you're in a higher tax place (e.g. MN), or you expect inflation to remain higher than 2.5% for an extended period, then the I-bond looks even better.

I did buy some I-bonds. Though if I want to back out, I can sell off lower yielding I-bonds I also own. If I do that, I'm effectively swapping out lower yielding I-bonds ones for higher yielding ones, not adding to my I bond holdings. IOW, I'm able to buy the I-bonds without making a long term commitment.

I also recently purchased a callable CD in my (inherited) Roth matching my 2024 RMD. 5.35% (long gone), matures in 9 months, callable in 6. If it gets called, I take the RMD a little early. If not, I take the RMD at the end of September.

This is an example of a special circumstance where there's little downside in getting called, and a little upside in taking the callable CD with a better rate (about the same rate as I could have gotten on a non-callable 6 month CD).