I've been kicking this idea around for a little while now. I'd like to put a little money into a CD to take advantage of the slightly higher interest rates but checking my banks policy gave me a bit of a pause.

The relevant policies for CDs that stood out to me were:

# Interest accrues daily, but not compounded
# Earned interest automatically transfers monthly to another deposit account

Is that pretty standard? I guess I had always assumed that CD accounts had compounding interest.

While the money market policy is:

# Dividends compounded daily, paid monthly

So on the one hand you have an account that has a higher interest rate that doesn't compound and on the other you have the lower compounded rate. I'd really like to know hat kind of difference this translates into.

My bank also has the same interest rate for a 1 year CD as a 3 year CD. There isn't an increase in the interest rate until years 4 (0.15% more) and 5 (a further 0.10%).

What are the current trends in CD interest rates? It would be helpful to know if it would be a good idea to just do a 1 year CD or 3 year. Obviously if the interest rate is expected to go down it would be best to lock in the current rate for the longer period of time.

I guess the other option would be to try and do a multi tiered plan where say you have $5K to invest you would just get 5x $1K (1, 2, 3, 4, and 5 year CDs) instead of 1x$5K CD.

8/17/2007 8:38:18 AM

Who is your bank and what are their rates?

8/17/2007 9:05:33 AM

Money Market
Interest rate: 4.40% APY: 4.50%

CDs (minumum, interest rate, apy):
6 Month $250 4.85% 4.85%
12 Month $250 5.00% 5.00%
18 Month $250 5.00% 5.00%
24 Month $250 5.00% 5.00%
30 Month $250 5.00% 5.00%
36 Month $250 5.00% 5.00%
48 Month $250 5.15% 5.15%
60 Month $250 5.25% 5.25%

8/17/2007 9:15:09 AM

Don't they list their "Annual Percentage Yield"? My bank does for its various instruments, very helpful to determine what your final total return will be including compounding and the like. Banks like them because they are higher than their interest rates.

My bank, emigrant direct, only gives 4.93% on its savings accounts, which works out (according to them) to 5.05% APY thanks to compounding.

8/17/2007 9:18:07 AM

aren't the MMA rates given as an annual percentage yield? you can pretty much compare it directly in that case. The reason the CD pays interest daily is in case you pull out of it early. The thing to consider is if you need the money liquid and if you think the mma rate might go up.

If you are thinking about locking the money up in a CD for a year or more you might want to consider the tax benefits of capital gains on securities: there's more risk, but if you get similar performance on a fund that you stick to for a year or more, you pay 15% tax instead of income rates which you will pay on the CD

8/17/2007 9:23:16 AM

i don't think the prime rate will be going down anytime in the near future

8/17/2007 9:33:29 AM

i would consider a high yield online bank also - hsbc or ing direct

8/17/2007 11:30:13 AM

I have alot of my money in CD's and in money market. If you put money in CD's space them out so that they become renewable every few month's that way if you need to access your cash you can get it with no penalty. I would say if you are going to be spending this money anytime in the next year go and put it in a Money market.

8/17/2007 11:38:33 AM

Quote :

"i would consider a high yield online bank also - hsbc or ing direct"

8/17/2007 11:51:03 AM

don't do this. the dollar is on the verge of crashing possibly to the point of oblivion. Creidtors lose, borrowers win in that situation. In five years10k will be worth 2k but 10k worth of stuff will cost 50k. Kepp you minimal savings and buy land or real estate with the rest then thank me in 5 years.

8/17/2007 11:57:26 AM

Hah. You lost pal? I think that post was meant for

http://thewolfweb.com/message_topic.aspx?topic=490310

[Edited on August 17, 2007 at 12:41 PM. Reason : ]

8/17/2007 12:41:41 PM

ing account=much better idea

8/17/2007 12:43:44 PM

ing is good, i know that one of the online directs, ing, hsbc, etc is at 5.5% on savings right now with no annual fee or minimum balance

8/17/2007 4:40:35 PM

get your apy yields from bankrate.com

the highest yield for cds i have seen is a bit more than 5.5% APY
for online savings accounts it maxes around 5.2% APY (not included promos that last a few months)

you are talking minimal amount of interest for a lot less liquidity, makes savings account look more appealing

of course, a 3yr CD will get you that rate for 3yrs, while a savings account could fluctuate

i got my stacks @ hsbcdirect.com, its FDIC insured, takes about 3-5 days for transfer, and 5.05% APY

[Edited on August 17, 2007 at 5:20 PM. Reason : & min account balance is only $1]

8/17/2007 5:19:55 PM

Bottom line for me is this, CD you can't touch without penalty. Money Markets are just like a bigger savings account. Therefore I have a money market.

8/19/2007 7:50:21 PM

Vanguard Prime Money Market always pays just below Federal Funds Rate (5.25%). It is at 5.11% right now, but has been as high at 5.14%. Money is not locked away like a CD, and interest pays back into the same account.

https://flagship.vanguard.com/VGApp/hnw/FundsSnapshot?FundId=0030&FundIntExt=INT

You'll thank me later.

[Edited on August 19, 2007 at 7:59 PM. Reason : ]

8/19/2007 7:56:46 PM

yeah i just do online transfers to emigrant direct every month. 5.05% i believe and accessible within 3-4 business days. cant get much better than that for safe savings.

8/19/2007 7:59:10 PM

Ahh good ole SECU I was suprised to see them lower the money market rates. HSBC, Emigrant, and others have higher rates then the SECU MMA. The questions is how fast do you want your money if you need it (and how much are we talking). If you can wait a few days go with one of the online banks, if you prefer a bank in raleigh that you can withdraw from anytime go with SECU (though I have heard that HSBC now offers an ATM card).

Even the best online CD's and SECU CD's aren't rewarding you for locking in a CD when compared to MMA (not much higher rates, less liquidity, can't deposit money monthly, etc).

I would also do this only after you have maxed out your IRA. That is unless you are trying to build an emergency fund via a MMA.

[Edited on August 20, 2007 at 3:55 AM. Reason : .]

8/20/2007 3:52:22 AM

Quote :

"yeah i just do online transfers to emigrant direct every month. 5.05% i believe and accessible within 3-4 business days. cant get much better than that for safe savings."

same here

8/20/2007 9:26:57 AM

Quote :

"i don't think the prime rate will be going down anytime in the near future"

feds will probably LOWER the rate .25% next meeting and another .25% the following meeting. they already lowered the discount rate for banks to borrow on by .50%, so analysts predict the actual fed funds rate to follow if economic conditions continue in the same path.

8/20/2007 9:49:24 AM