CD Discussion Thread

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:

It’s not as if we were discussing comparison with a five year commitment by some fly-by-night San Francisco fintech. :wink:

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“from a purely safety standpoint, CDs and T-notes are comparable”
Not sure I agree with this statement. I don’t 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 don’t 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 don’t 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 wouldn’t buy either.

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I think how someone interprets this is highly subjective. I think you’re both correct, the difference in opinion requires drilling much deeper than most are intending when stating an investment is “safe”.

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.

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Anticipatory rate increases

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) “on the cheap” 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. It’s 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.

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