I have invested heavily in CDs since March of 2022. Many of those CDs are now maturing, and I have decisions to make about investing in new CDs. Rates seem to be flattening recently, and rates for CDs longer than 2 years seem to be dropping. The best rates are shorter term, 3 months to 1 year, paying a little over 5%. CDs from 18 months to 2 year are around 5%, and anything longer is less than 5%. When I look at the future, there does not seem to be a strong appetite for any major rate increases, with most projections thinking we may get 2 more .25% rate increases in the second half of 2023. I am now thinking about going out to about 18 months to 2 years for a CD paying 5% or more, but continuing to renew CDs for 6 months to a year, when they are at 5.25% or more. I currently am hesitant to invest in longer term CDs that are paying below 5%.
For those continuing to have a desire to invest in CDs, I would be curious as to what you consider as attractive rates to maintain your investing interest.
Comments
Correction to what you stated in the OP:
2- and 3-yr CD rates have recently been inching UP, NOT DOWN.
I've replied to you a few times over the years about this topic and once in the past few months. You don't seem to appreciate my input on this topic, but I'll try it one more time, especially for those who might.
It's all pretty simple if you paint by numbers, so to speak. Translation, create a very basic EXCEL spreadsheet and drop in the variable numbers.
Here are the BEST current CD rates for Fido, non-callable CDs.
1-yr: 5.25%
2-yr: 4.95%
3-yr: 4.80%
Example:
You want to invest in non-callable, interest bearing instruments for 3 years.
You BUY a $10,000, 1-yr, non-callable CD at 5.25%
At maturity in ONE year in July 2024, you earned $525.
You could have instead BOUGHT a 3-yr, non-callable CD at 4.80%
At maturity in THREE years in July 2026, you would have earned ($480 x 3 or) $1,440.
In order to break even with the currently available 3-yr CD rate, at maturity of the 1-yr CD in July 2024, you will need to BUY a 2-yr CD paying 4.58%.
($525+$458+$458 = $1,441)
(NOTE: You could also BUY a 1-yr in July 2024, and another 1-yr in July 2025, but I'll leave that scenario and math up to you.)
So, in this example,
(1) If you THINK a 2-yr, non-callable 4.58% or greater CD will be available in July 2024, BUY the 1-yr now.
(2) If you DON'T THINK a 2-yr, non-callable 4.58% or greater CD will be available in July 2024, BUY the 3-yr now.
For my money, the decision is easy. BUY the 3-yr NOW as IMO it is unlikely a 2-yr, 4.58% non-callable CD will be available in July 2024. And even if it is, IMO it won't be sufficiently greater than 4.58% to cause me to let the current 3-yr rate of 4.80% get away from me.
Disclaimer: This ain't idle chat. It's what I'm actually doing, and have been doing, for the past six months.
As of 6/30/23 EOD:
1-yr 5.40%
2-yr 4.87%
3-yr 4.49%
Breakeven yield 4.035%
So, if 2-yr 1 yr from now will be > 4.035% (it is 4.87% now), then buy 1-yr now and roll into 2-yr on maturity (likely). Else, buy 3-yr now (less likely). Or, it could be just a toss-up.
The picture may become more clear as the Fed raises rate twice (?).
I thought that possibly a few other posters might be experiencing the same investing decision, but was not sure. If so, I was interested in what others thought was attractive/acceptable to renew CDs, vs replacing them with other investing options. Hence my question in my initial post on the thread:
"For those continuing to have a desire to invest in CDs, I would be curious as to what you consider as attractive rates to maintain your investing interest."
I'm encouraged so far by how well the bond etf sub-port is holding up.
You've done well the past year without the ups/downs that the folks in the market have, likely a little better than SPY without the drawdown, not too shabby.
It all depends though...most dangerous times in the market are when overvalued, lot of debt floating around everywhere, and investing in the market is very risky several years right before/after you retire, especially if you do not have a govt pension.
FWIW, I've been 90%+ in laddered Tbills/CDs the past year(s), no regrets, so what if NVDA had a moonshot return the past several weeks, I tip my hat to the folks who invested there, I still earned several years of my annual spend/expenses with the interest from the Tbills....I still dabble with some funds (PVCMX, MRFOX & BLNDX lately) to satisfy my itch to "do something".
Me, what I am doing, going to buy 6 month, 1 yr and 2 yr Tbills/Notes when they auction over the next couple weeks. I'll step into the market with more "real" monies if we see a -15, -20%+ schmeissing over the next several months.
Good Health and Good Luck to you, no matter what you decide to do,
Baseball Fan
In some cases, I’ve reinvested the money in new CDs. In other cases, I’m holding the cash in money markets. In other cases, I’m investing in bond funds that have been holding up better than most. I presume that eventually most of my maturing CDs will be reinvested in bond funds —unless interest rates keep rising and CDs/ money markets keep paying high yields.
OTOH, being realistic, real returns even before, but especially after taxes are not going to be much over zero. I'm assuming inflation rates in the 3-4% range.
Yes, one is keeping up with, even "beating" inflation -- no small feat -- and doing this effortlessly and for free, but there's not going to be any compound growth, one isn't going to be making any money.
Accordingly, about 10% in CDs seems about right (no bonds).
Not sure what the class thinks about this comment...but...while we are all sailing in the same ocean, we all experience inflation differently in the water craft we are on....you could argue that your portfolio as a whole gets whacked by inflation but I would also state for example if my annual spend is $150k before taxes annually and that inflation has gone up by +10, +15% (can we talk, be real, who really believes that bullshit that inflation was/is only 5,6,7% the past year) but that $150k is only very tiny % of my overall portfolio, inflation doesn't really impact my lifestyle, spending habits....I can always cut back somewhere. But say if one puts 35-50% of their portfolio in the markets and it gets whacked which is not out of the realm of reasonable possiblities and you add the "real world" inflation...you could get in trouble quickly as a near or in retiree.
Rule #1 is capital preservation. Live to fight another day. don't get greedy...nothing wrong with ther 5% annual return...so many co workers the past 15 years in their early 50's were saying....all I "need" is 5% a year....until then they kept grinding....
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So, a serious question:
What purpose is your post about bond OEF trading on THIS thread other than feeding your incessant self-aggrandizing?
Puhlease don't say you are just offering up an alternative to CDs.
You KNOW that DT knows all about bond OEFs and he has told you countless times over the past 10-15 years that he does not trade bond OEFs. When he invests in them he does it LT.
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Too bad you "never in your life owned CD(s)." In the 1980s they averaged 12%.
Oh, and good for you that you (allegedly, as always) made a few pennies on some secret sauce bond OEFS while the smart money this year was played on big tech, AI and semis. You're only trailing the S&P this year by ~10+%!
Atta boy!
If there's any doubt about your intended holding period, MMkts and T-bills are clearly the way to go. The inventory of CD Secondary Issues grows every day because many investors just don't get the (very simple) basics.
I read WABAC as saying that he has tried holding short-term CDs, but didn't like that. No indication that he tried to sell them prior to maturity.
Left undefined in all of this is what exactly is the definition of "short term CD" as being used here.
While I agree with Stillers regarding the correct way to use CDs, I really don't appreciate his condescending style- apparently he's attempting to emulate a certain FD person.
@WABAC- perhaps you could clarify this?
Thanks- OJ
Did I say that? No, I did not. I made general comments about holding CDs to maturity that YOU misinterpreted. Go back and re-read my post and show me EXACTLY where I said what you THINK I said.
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"While I agree with Stillers regarding the correct way to use CDs, I really don't appreciate his condescending style- apparently he's attempting to emulate a certain FD person."
C'mom man! Are you serious?
TRY to take my post to FD at face value. His self-aggrandizing post about trading bond OEFs has NOTHING to do with this topic, and any poster worth his salt tries to STOP the BS that he daily spews. Well, not daily on BB as FD's been banned there for about two more months.
I (as do many poster who have borne witness to FD for 10-15 years) know that FD can't be stopped. I simply do my part to TRY to control him.
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On the latter, FWIW, AFTER I made my post to FD I received a PM from a very reputable poster who appreciated my on-going containment efforts. So please STOP with BS accusations. Saying that I am "attempting to to emulate...FD" sounds a wee bit, well, nuts.
Your response to WABAC focuses on holding to maturity. Nowhere does he mention that.
Q.E.D.
No tax loss harvesting in an IRA.
I'm holding the two CD's and single TBill to maturity. And it looks like that will be happening just in time for some shopping.
Glad I tried it. Had the room to do it. Just not my cup of tea.
Take care.