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09-18-2013, 09:02 AM
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#21
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gone traveling
Join Date: Apr 2011
Posts: 3,375
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Quote:
Originally Posted by samclem
And to anybody trying to eek out an extra 1% by buying a 10 year bond over a CD--that'll hurt when interest rates go up. And they ain't gonna go down from here. But grab the nickels while you can.
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It won't hurt till CD rates go over the bond rate & then you have to make up what you're behind till that point plus pay off the cost of breaking the lower rate CD - the lost interest. Net, the break even point, if there is one, could be way out there.
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09-18-2013, 09:32 AM
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#22
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Recycles dryer sheets
Join Date: Sep 2012
Posts: 62
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Why would buying a 10-year Bond and holding it to maturity would hurt?
BTW, 10-year TIPS auction is tomorrow. Today's rate on 10-year TIPS is 0.7%.
It looks pretty attractive to me and I might participate with a small amount. It definitely beats the current I-bonds.
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09-18-2013, 09:41 AM
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#23
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Thinks s/he gets paid by the post
Join Date: Jun 2006
Location: Central, Ohio, USA
Posts: 2,635
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Here is a little financial maneuver that worked for me back in 2006. I was over the age of 59.5 (this is a key factor). Interest rates were going up very quickly reaching 6.25% on 7 year CD's. I had a group of Traditional and ROTH IRA CD's paying considerably below this rate. I called the Credit Union custodian of the CD's and said can I redeem ALL of my T & R CD's penalty free since I am over 59.5 years of age? They said yes you can but you will have to pay Federal & any applicable State Taxes unless you put the respective redeemed amounts back in to the appropriate T or R IRA within 60 days (which I already was aware of). I said well I want to redeem it ALL but reopen new CD's in the appropriate amounts now too. I did that and received the higher rates for 7 years without any tax or penalty impact.
__________________
Vietnam Veteran, CW4 USA, Retired 1979
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09-18-2013, 09:51 AM
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#24
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2003
Posts: 18,085
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Quote:
Originally Posted by hsv_climber
Why would buying a 10-year Bond and holding it to maturity would hurt?
BTW, 10-year TIPS auction is tomorrow. Today's rate on 10-year TIPS is 0.7%.
It looks pretty attractive to me and I might participate with a small amount. It definitely beats the current I-bonds.
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I bonds are very different from 10 year TIPS. I bonds can never have periodic interest rates below zero, TIPS can. With TIPS, you are guaranteed to get back at least your face amount at maturity (10 years), but that is it. If you liquidate before then you take what the market gives you (and that could be ugly). With I bonds you always get to liquidate at the accumulated value, minus any (vanishingly small) early surrender penalties. I like I bonds better for absolute safety despite the zero fixed coupon and the PITA nature of treasury direct.
__________________
"All animals are equal, but some animals are more equal than others."
- George Orwell
Ezekiel 23:20
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09-18-2013, 10:04 AM
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#25
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Recycles dryer sheets
Join Date: Sep 2012
Posts: 62
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Quote:
Originally Posted by brewer12345
I bonds are very different from 10 year TIPS. I bonds can never have periodic interest rates below zero, TIPS can. With TIPS, you are guaranteed to get back at least your face amount at maturity (10 years), but that is it. If you liquidate before then you take what the market gives you (and that could be ugly). With I bonds you always get to liquidate at the accumulated value, minus any (vanishingly small) early surrender penalties. I like I bonds better for absolute safety despite the zero fixed coupon and the PITA nature of treasury direct.
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Not entirely correct. You can't liquidate I-bonds at all for the first year (and then it is a 3 months penalty for the first 5).
In addition to that, you can't buy I-bonds in an IRA, like I am planning to do with TIPS.
Of course, "safety" is nice, but 0.7% / year is a decent bonus. But what you are calling "safety" here applies only to long periods of deflation and we have not had those in a long time.
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09-18-2013, 10:10 AM
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#26
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2003
Posts: 18,085
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Quote:
Originally Posted by hsv_climber
Not entirely correct. You can't liquidate I-bonds at all for the first year (and then it is a 3 months penalty for the first 5).
In addition to that, you can't buy I-bonds in an IRA, like I am planning to do with TIPS.
Of course, "safety" is nice, but 0.7% / year is a decent bonus. But what you are calling "safety" here applies only to long periods of deflation and we have not had those in a long time.
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I don't find real interest rates below 1% for 10 years too comforting. YMMV.
__________________
"All animals are equal, but some animals are more equal than others."
- George Orwell
Ezekiel 23:20
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09-18-2013, 10:27 AM
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#27
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2003
Location: Hooverville
Posts: 22,983
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Quote:
Originally Posted by OAG
Here is a little financial maneuver that worked for me back in 2006. I was over the age of 59.5 (this is a key factor). Interest rates were going up very quickly reaching 6.25% on 7 year CD's. I had a group of Traditional and ROTH IRA CD's paying considerably below this rate. I called the Credit Union custodian of the CD's and said can I redeem ALL of my T & R CD's penalty free since I am over 59.5 years of age? They said yes you can but you will have to pay Federal & any applicable State Taxes unless you put the respective redeemed amounts back in to the appropriate T or R IRA within 60 days (which I already was aware of). I said well I want to redeem it ALL but reopen new CD's in the appropriate amounts now too. I did that and received the higher rates for 7 years without any tax or penalty impact.
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Very clever; thanks for posting.
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
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09-18-2013, 11:20 AM
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#28
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Thinks s/he gets paid by the post
Join Date: Jul 2013
Posts: 1,046
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I would've thought that in a rising interest-rate market buying a long term CD is probably not a good idea? I have looked at I-bonds before and figured they would be a good buy once the interest rates are high?
Looks like 3% in a long-term CD is considered pretty good these days huh? I guess (long) gone are the days when ING/HSBC/EmigrantDirect etc used to offer 3-4% in their savings accounts!
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09-18-2013, 12:59 PM
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#29
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Recycles dryer sheets
Join Date: Sep 2012
Posts: 62
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10-year TIPS are currently 0.5%.
I guess I would not be buying them tomorrow after all.
After today's FED decision, CDs might be a better choice.
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