Help me pick a CD
November 9, 2010 2:49 PM Subscribe
I need advice on picking a CD. Our financial planner has advised that we use a portion of our cash to purchase an 18-month CD. She listed Discover Bank as the institution to use, citing a rate of 1.50%. Between our meeting with her and opening the account and transferring the money, the rate for an 18-month CD at Discover has dropped to 1.40%. Is there a website that compares CD rates? I went to Ally and see their rate is 1.44%. Is there an online calculator I can use to see how much of a difference this is from Discover (i.e., so I can decide whether it's worth it to open a new account and transfer money to Ally). Or, should I wait it out and see if rates go back up?
What's a CD? In a former life I was an Independent Financial Adviser, but I have never heard of a CD.
Really? It's a certificate of deposit.
posted by mr_roboto at 2:54 PM on November 9, 2010
Really? It's a certificate of deposit.
posted by mr_roboto at 2:54 PM on November 9, 2010
As well as headline rates, you need to consider any potential penalties for early redemption and the compounding frequency for interest, but Bankrate's calculators allow you to do that.
CDs are very US-centric; the closest UK equivalent is the bond account, but the notice account has similar characteristics.
posted by holgate at 3:05 PM on November 9, 2010
CDs are very US-centric; the closest UK equivalent is the bond account, but the notice account has similar characteristics.
posted by holgate at 3:05 PM on November 9, 2010
Response by poster: Bankrate! Thanks, grouse. Looks like no one has anything above 1.45%. Also, yes, I am in the US (apologies for not specifying), and I am referring to a certificate of deposit.
Any ideas on whether to wait for rates to go up, or thoughts on if they are likely going down instead? This could be one of those questions no one can answer, but I know in some instances the general trend is apparent to market-watchers. I am pretty much a novice in this area, but trying to educate myself.
posted by JenMarie at 3:05 PM on November 9, 2010
Any ideas on whether to wait for rates to go up, or thoughts on if they are likely going down instead? This could be one of those questions no one can answer, but I know in some instances the general trend is apparent to market-watchers. I am pretty much a novice in this area, but trying to educate myself.
posted by JenMarie at 3:05 PM on November 9, 2010
You could use the Interest Rate Chaser Calculator. It was made in the heyday of savings accounts offering 5% or more, when people shuffled their money in between accounts depending on who was offering the most, but I think it could be used for your purpose to calculate the difference you'd earn between both, taking in account the lag time of not having your money earn interest while it is being transferred.
posted by zsazsa at 3:16 PM on November 9, 2010
posted by zsazsa at 3:16 PM on November 9, 2010
You can get a savings account with a 1.3% APY (vs 1.46% for the 18-month CD). I wouldn't bother tying my money up for 18 months for a measly additional 0.16%. You'll only make an extra $16 for every thousand dollars invested, and if you make an early withdrawal you lose approximately $73 per thousand. That sounds like a bad deal.
posted by grouse at 3:17 PM on November 9, 2010
posted by grouse at 3:17 PM on November 9, 2010
Those numbers are off. It is actually only an extra $1.60 for every thousand dollars invested per year, but the penalty is about $7.
posted by grouse at 3:20 PM on November 9, 2010
posted by grouse at 3:20 PM on November 9, 2010
Bankrate! Thanks, grouse. Looks like no one has anything above 1.45%.
Deposit Accounts shows some up to 1.75%
Any ideas on whether to wait for rates to go up, or thoughts on if they are likely going down instead? This could be one of those questions no one can answer, but I know in some instances the general trend is apparent to market-watchers. I am pretty much a novice in this area, but trying to educate myself.
They mainly go up and down based on actions by the Fed, which in turn bases their actions on how the economy is doing. So if there is a big rebound in the economy in the next year rates could go up significantly. As grouse said you can get pretty similar rates with savings accounts (and probably even better rates in rewards checking accounts) so there's not a big advantage to locking in today's relatively low rates.
posted by burnmp3s at 4:06 PM on November 9, 2010 [1 favorite]
Deposit Accounts shows some up to 1.75%
Any ideas on whether to wait for rates to go up, or thoughts on if they are likely going down instead? This could be one of those questions no one can answer, but I know in some instances the general trend is apparent to market-watchers. I am pretty much a novice in this area, but trying to educate myself.
They mainly go up and down based on actions by the Fed, which in turn bases their actions on how the economy is doing. So if there is a big rebound in the economy in the next year rates could go up significantly. As grouse said you can get pretty similar rates with savings accounts (and probably even better rates in rewards checking accounts) so there's not a big advantage to locking in today's relatively low rates.
posted by burnmp3s at 4:06 PM on November 9, 2010 [1 favorite]
As well as headline rates, you need to consider any potential penalties for early redemption and the compounding frequency for interest, but Bankrate's calculators allow you to do that.
This is actually where Ally comes out way ahead. You only pay 60 days interest as a penalty, even if you are breaking a 5-year CD.
posted by smackfu at 4:17 PM on November 9, 2010
This is actually where Ally comes out way ahead. You only pay 60 days interest as a penalty, even if you are breaking a 5-year CD.
posted by smackfu at 4:17 PM on November 9, 2010
Getting The Highest Interest Rate from CDs - Certificates of Deposit vs High Yield Savings | MintLife Blog
posted by glibhamdreck at 4:21 PM on November 9, 2010
posted by glibhamdreck at 4:21 PM on November 9, 2010
Deposit Accounts shows some up to 1.75%
Thanks for that, burnmp3s. Of course, Deposit Accounts shows a savings account at that rate too.
posted by grouse at 4:22 PM on November 9, 2010
Thanks for that, burnmp3s. Of course, Deposit Accounts shows a savings account at that rate too.
posted by grouse at 4:22 PM on November 9, 2010
You can check out Fat Wallet where a bunch of rate chasers share information on everything from CDs to Money Markets to special rates.
Also, two more options: go to your financial adviser and ask them about a brokered CD - they can shop across the US and find the highest rate and buy it for you. Another choice is asking for a "market-linked" CD ... they're more for longer term, but are guaranteed by the FDIC. Your licensed banker can help you further with both of those options.
As a side note, why 18 months?? If you look historically at CD rates over the past five years, they've gone lower and lower ... you might as well go for as long as you can because chances are you aren't going to see some giant increase in rates in 18 months. If you do, the penalty will likely be minimal (6 months of interest or perhaps 9 months?) and you can break the CD and open a new one at those 6% rates everyone is betting on (ha-ha!) .... Have your adviser run a few scenarios for you and you'll see how that would work. Or, you can do some calculations yourself.
posted by cyniczny at 4:45 PM on November 9, 2010
Also, two more options: go to your financial adviser and ask them about a brokered CD - they can shop across the US and find the highest rate and buy it for you. Another choice is asking for a "market-linked" CD ... they're more for longer term, but are guaranteed by the FDIC. Your licensed banker can help you further with both of those options.
As a side note, why 18 months?? If you look historically at CD rates over the past five years, they've gone lower and lower ... you might as well go for as long as you can because chances are you aren't going to see some giant increase in rates in 18 months. If you do, the penalty will likely be minimal (6 months of interest or perhaps 9 months?) and you can break the CD and open a new one at those 6% rates everyone is betting on (ha-ha!) .... Have your adviser run a few scenarios for you and you'll see how that would work. Or, you can do some calculations yourself.
posted by cyniczny at 4:45 PM on November 9, 2010
The interest rate situation is always complicated. The fed is creating more money, which can trigger inflation, (BB actually says "...inflation is running at rates that are too low ... unemployment is clearly too high ..."), but they're putting it into bonds, which should lower rates. Other countries don't like that too much, because it looks like currency manipulation, so it might get called off.
Some of the smart people in the finance world try to figure out what interest rates are going to do, because it would allow you to make gobs of money if you saw it coming accurately.
You can get the short-term, online-saving, or no-penalty accounts at discover or ally. It's easy to whittle away at your rate, but they're already so low it makes little difference in this case (1.28% saving account vs 1.40% CD).
posted by a robot made out of meat at 6:27 PM on November 9, 2010
Some of the smart people in the finance world try to figure out what interest rates are going to do, because it would allow you to make gobs of money if you saw it coming accurately.
You can get the short-term, online-saving, or no-penalty accounts at discover or ally. It's easy to whittle away at your rate, but they're already so low it makes little difference in this case (1.28% saving account vs 1.40% CD).
posted by a robot made out of meat at 6:27 PM on November 9, 2010
Response by poster: Thank you, everyone, for the suggestions, links, and different perspectives.
The 18-month period was because we may want to buy a house in the next two years. Initially I went to a financial planner because we had saved up a chunk of change for a house down-payment, then decided it wasn't the right time for us to buy (mainly because for employment reasons we couldn't commit to a specific location). So I had this cash in a basic savings/checking situation, and wanted to earn something on it while still keeping most of it liquid enough that we could buy in the next couple of years.
I paid hourly for the planner which is why this question of the CD (for a portion of our cash) I thought I could resolve without going back to her and paying her to do more research. I like the idea of buying a 5-year CD at Ally and taking the penalty if rates go up, but I wasn't sure if I was reading the penalty wording correctly.
Thanks again!
posted by JenMarie at 9:57 PM on November 9, 2010
The 18-month period was because we may want to buy a house in the next two years. Initially I went to a financial planner because we had saved up a chunk of change for a house down-payment, then decided it wasn't the right time for us to buy (mainly because for employment reasons we couldn't commit to a specific location). So I had this cash in a basic savings/checking situation, and wanted to earn something on it while still keeping most of it liquid enough that we could buy in the next couple of years.
I paid hourly for the planner which is why this question of the CD (for a portion of our cash) I thought I could resolve without going back to her and paying her to do more research. I like the idea of buying a 5-year CD at Ally and taking the penalty if rates go up, but I wasn't sure if I was reading the penalty wording correctly.
Thanks again!
posted by JenMarie at 9:57 PM on November 9, 2010
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posted by grouse at 2:50 PM on November 9, 2010