No question. My earlier post was for comparison purposes for those considering five year CDs. It was not a suggestion anyone actually go out five years at this time.
My personal opinion is that it would be risky to make a five year commitment of funds today, be it in CDs or in bonds. However:
Not everyone agrees with my opinion regarding the future of interest rates. And others are certainly entitled to their own opinions. So:
From a purely safety standpoint, CDs and T-notes are comparable. So it is fair to compare yields. I mean:
Itās not as if we were discussing comparison with a five year commitment by some fly-by-night San Francisco fintech.
āfrom a purely safety standpoint, CDs and T-notes are comparableā
Not sure I agree with this statement. I donāt think you can divorce safety from a loss of principal due to market conditions. I would go with the CD because I know the penalty for cashing it in early as opposed to the treasury. However I might want a higher yield from the CD to account for the state tax in Ca, which I donāt have with the treasury. However, at this time I would reject both until I have a better idea of where we are going with this surge of inflation. I have no faith that the people currently in charge will take appropriate actions to bring it under control.
You will never lose principal unless you sell it early. Similarly, you may lose principle if you sell the CD early (enough). As @shinobi said, that is market risk. I donāt know anyone on this board that will buy the 5 year T-note at 1.3x% or a 5 year CD at the same rate. I occasionally buy 30 day T-bills and have no doubt, ever, of their safety.
Obviously, I was suggesting you could only lose principal if you need to sell before the 5 years. The point I am trying to make is you could lose a hell of a lot more principal from the treasury than the CD. Regardless, like you, I wouldnāt buy either.
I think how someone interprets this is highly subjective. I think youāre both correct, the difference in opinion requires drilling much deeper than most are intending when stating an investment is āsafeā.
A t-bill is not safe because you can lose money, but it is safe because you cannot lose money unless you make the choice to create that loss by bailing early.
I was going to agree with you, in that if you break out market risk then you must consider countless stocks to be safe investments as well. But stocks have no endpoint, there is no timeframe where you know what the value will be. So I guess I agree more with Shinobi, that a 5 year t-bill is a safe 5 year investment, regardless of the potential volatility prior to the maturity date.
Most participants here will remember the blowout Sharonview 4% APY CD deal which was offered back early in 2018, now darn near four years ago. Things were far different then than now, with low inflation and a recovering, growing economy. The potentates at Sharonview smelled higher rates coming and sought to lock in money they could borrow (from us) āon the cheapā with their 4% CD offering. As things worked out they were wrong and they have been paying the price ever since.
So keep your eyes open. We appear once again to be on the brink of higher interest rates generally. Itās possible some enterprising financial institution executive, certain interest rates will go even higher, will soon get the idea to corral money on the cheap by lassoing our CD funds with an attractive higher rate/longer term CD deal. All that in anticipation of still higher interest rates going forward.
Things could become interesting as we move farther into 2022.
Fed expected to raise rates 7 times this year to fight inflation, BofA says
Very little progress on supply chain disruptions being seen; major truck driver shortage. Lunar New Year worries. Possibility of 50 basis point rate increases. Possibility of rate increase at every FOMC meeting in 2022.
I think it is a supply chain consideration. At the Lunar New Year the factories close and everyone goes on vacation . . . . or something like that. It is a national holiday in China, and the holiday lasts for at least a week, if not longer.
I just bought some six months t-bills with a discount of 99.7067. That works out to an annual rate of .5866% without compounding. as usual, no state tax which saves quite a bit in my home state of TaxiFornia.
JPMorgan Now Expects Nine Straight Fed Rate Increases Until March 2023
As an old mentor of mine (John Scheuer) used to say back circa 1979, as inflation then was skyrocketing:
āKeep it short, keep it safeā
Today we once again are staring inflation in the eye, and the wisdom of Johnās counsel has not waned. And that goes double in the wake of news such as this:
I think itās going to take the first actual increase to break the ice, and then we will finally start to see some good promotional CD offers with decent rates.
The problem is that CD desirability is tied to liquid rates, not the Fed rate, and we all know that liquid rates fall like a rock but can really lag when rates are rising. So sitting on cash may prove to be counterproductive, especially when the marginally attractive 12-15 month term CD offers start to appear (thereās a good chance the 12-month term will be maturing before there are better options anyways).
Itās all still crap for the moment, but one of these days we are going to suddenly have an awful lot to think about and consider.
Iām happy about the thought of rising % interest rates. Those of us that have been around here for years do remember the days.
Of lately Iām just trying to find decent liquid rates
offerings for holding places for maturing $$ās. But do you suppose itās going to happen like monthly hikes?
Only a couple+ years ago we were scrambling for 3%/4% CD offerings. Oh for the daysā¦
The Bellco Credit Union āSmart Moveā CD is something of a crossover product. It embraces aspects of a liquid money account. It is an NPCD (no penalty CD), but perhaps only up to a point. Iām not clear on the details. Here is a description of the product from the Bellco website:
Smart Move CD
Want greater control and flexibility in your savings? Deposit a minimum of $2,500 and our Smart Move CD will give you the benefits of a traditional CD with great rates and uniquely flexible options, like the ability to bump up, add funds, and more.
Start with a minimum of $2,500.
Make a one-time ābump-upā to the next interest rate anytime during the term of your CD.
Ability to add a one-time additional deposit of $100 or more to your existing account.
Flexibility to make one withdrawal during the account term with no penaltyāas long as a minimum balance of $2,500 is left in the account.
The APY on the 36 month Smart Move CD is 0.95%. This account is NCUA insured.
Bellco is in Colorado. Anyone may join. I happen to be a member there, but my account is inactive and I do not own a Smart Move CD so have no personal experience with this product.
Itās a no penalty, bump-up, add-on CD - all the best features in one place. But limited to one time use for each feature.
Might be worth opening (especially if youāre already a member) with $2500, just so you have the option down the road to bump the rate and add funds. But I suspect the bumped rate will always lag the leading CD offers at the timeā¦
Actually the locus of my uncertainty was elsewhere. Itās not clear (at least not to me) from their written description whether or not there is a limitation on how much of your account you are permitted to withdraw. In addition, the withdrawal mechanism is not detailed. Online? You have to call them? I dunno. And there surely are other aspects of this deal needing elucidation Iām unable to provide.
Generally, whenever I post a deal Iāve not done myself, I try to err on the side of caution. I want anyone interested in the deal to explore for themselves any possible pitfalls or hazards.
Insofar as Iām aware Ken has not posted this deal yet. If he does Iām confident he will illuminate any potential problem areas. Ken oftentimes telephones the financial institution before posting a deal, in order better to explore it. I donāt do that. So when a CD deal is posted here itās always on the basis of caveat emptor.
Today I received an email advertisement from an old account. USAlliance Financial. Itās been closed for a few years. I searched back for old ID & Password. Found and have $5. in the savings.
Anyway new offering, 18 month CD 1.50%.
Sounds pretty decent and I have $$ looking for a home. Iām not able to post it. (older/not trained). If interested you can look it up.
As OP I appreciate all participants on this thread, whether you only post infrequently and even if you never post at all. And I especially do not want to come off as ātin foil hatā guy. But Iām gonna risk this post regardless:
In light of current events I urge you all, if you subscribe to e-statements, to be sure to print out the statements for your accounts, and for your larger accounts in particular. Sure. Sure. I realize everyone is doing this anyway, religiously, every month. And that is fine.
But on chance you might have been putting things off and relying instead on the internet . . . . well . . . . this is not a good time to be following that course. So get those printers humming if need be. And good luck.
Hopefully this is all just a bunch of baloney. But one never knows.
