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AAA Discover 10 year CD at 3.06 APR?
Old 09-12-2011, 02:44 PM   #1
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AAA Discover 10 year CD at 3.06 APR?

Any colleague perspectives on whether the 10 year Discover CD at 3.06APR makes sense to consider with it's 9 month simple interest early withdrawal penalty if rates were to rise versus say the much shorter Ally 5 year CD at the present 2.11 APR with only 60 day EWP or another potential low risk/resaonable yield alternative?

Note, several posts I have read in various forums have commented on the potential of some banks to block CD withdrawals or the bank disclosures being changed to increase the EWP mid-stream in a rising rate environment which is a potential risk but not sure how much.

As I continue though to look at the current stock and pricey bond environment, as a relatively risk-adverse investor I am finding it hard to dismiss the merits of the highest long-term CD I could find in today's low rate environment versus lower yields on the shorter 5 year term CDs or being only able to realize 1% or so in a high yield savings account. Thoughts?
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Old 09-12-2011, 03:15 PM   #2
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Any colleague perspectives on...
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colleague (ˈkɒliːɡ) n
a fellow worker or member of a staff, department, profession, etc.
Matrix1, have we worked together somewhere?
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Old 09-12-2011, 03:29 PM   #3
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I took the liberty of evolving the definition to also include forum associations!
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Old 09-12-2011, 03:32 PM   #4
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OK, comrade colleague, welcome aboard...
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Old 09-12-2011, 04:34 PM   #5
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pssssstttt 3.22%

https://personal.vanguard.com/us/fun...T#hist=tab%3A1

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Old 09-12-2011, 04:39 PM   #6
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Ah, but he said risk averse.
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Old 09-12-2011, 06:45 PM   #7
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Ah, but he said risk averse.
True. Though I do wish that more folks would consider potential future inflation a "risk" because it very much is.

I'd never seek to convince someone to assume more risk than they are comfortable with. I just wish they would consider that locking in long term, historically terrible interest rates involves "risk" of inflation taking off in a few years.
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Old 09-12-2011, 06:56 PM   #8
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True. Though I do wish that more folks would consider potential future inflation a "risk" because it very much is.

I'd never seek to convince someone to assume more risk than they are comfortable with. I just wish they would consider that locking in long term, historically terrible interest rates involves "risk" of inflation taking off in a few years.
Yes that is the major concern and the key is being able to terminate the long term CD with the early withdrawal penalty of "only" 9 months simple interest if inflation and interest rates increased over the term.
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Old 09-12-2011, 07:30 PM   #9
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Yes that is the major concern and the key is being able to terminate the long term CD with the early withdrawal penalty of "only" 9 months simple interest if inflation and interest rates increased over the term.
I've been doing similar research as you. Probably visited the same websites.

I agree, inflation is a factor. However, have not seen much inflation lately.
Also, for the risk adverse. CD's are the main option.

Discover Bank. I think, if you're a member of AAA, you get a bonus added to the CD. 10 yr CD, is not bad if the penalty is short. Just have to do the calculations.

I think I read in some "old" posts, some customers of Discover were not happy
with customer service. (I think delays in postings of deposits), etc...

Still, I might go with them. As long as FDIC insurance, short penalty period, and if CD rates are best in nation.
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Old 09-12-2011, 08:12 PM   #10
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I've been doing similar research as you. Probably visited the same websites.

I agree, inflation is a factor. However, have not seen much inflation lately.
Also, for the risk adverse. CD's are the main option.

Discover Bank. I think, if you're a member of AAA, you get a bonus added to the CD. 10 yr CD, is not bad if the penalty is short. Just have to do the calculations.

I think I read in some "old" posts, some customers of Discover were not happy
with customer service. (I think delays in postings of deposits), etc...

Still, I might go with them. As long as FDIC insurance, short penalty period, and if CD rates are best in nation.
Yes get an additional 5 basis points so 3.05 APR if have AAA. I too have heard of customer service concerns but then some good ones as well. Guess depends on instance and specific case.

I still though have some concern whether Discover could potentially change the EWP mid-stream if rates started to rise quickly and impose this change on existing CDs or perhaps simply refuse early withdrawals even though there is nothing in the Bank Disclosure agreement indicating this ability.

The disclosure indicates they indeed can make changes which you would have 30 days to either agree to or can choose to terminate the CD, but with the need to pay the initial 9 months EWP. This would be a major concern if this happened prior to the first 2 years required to make this better than a 5 year ALLY CD with only 2 months EWP. In speaking with several CSRs, as expected they all indicate they wouldn't do this and would only apply to new CDs but not yet convinced.

Otherwise I have no problem keeping at least 2 years in today's rate environment and could be a real nice long-term hedge should interest rates remain low for several years analogous to Japan.
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Old 09-12-2011, 08:34 PM   #11
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I agree, inflation is a factor. However, have not seen much inflation lately.
In terms of the CPI or in terms of the real world prices an average household pays for the essentials? If the latter, I'm jealous, because I'm seeing a lot more of it than that.

In any event, if the interest penalty is fairly small for early withdrawal, yield chasers don't have much choice any more...

It just blows my mind that until 3 years ago, the thought of a 3% yield on a 10-year CD was unimaginably terrible, and now it's best in breed...
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Old 09-13-2011, 04:48 PM   #12
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Ah, but he said risk averse.
"Slightly".... but I agree with you but......someone had to do it....

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Old 09-14-2011, 06:20 AM   #13
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Ah, but he said risk averse.
Yeah, but I still like the suggestion to use Vanguard Wellesley Income Fund. A lot of folks find that contrary to conventional wisdom, but I think it's pretty spot-on advice.

I also like Vanguard Total Bond Market ETF (BND) and some of the dividend paying stocks and/or ETFs.

Might also consider some nice preferred stocks. I am a lot more fond of the TVA preferred than a 10 year CD at 3%.

On a slightly different note, I'm a smoker and looking for a healthier cigarette. Anybody got any suggestions?
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Old 09-14-2011, 05:30 PM   #14
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...........In speaking with several CSRs, as expected they all indicate they wouldn't do this and would only apply to new CDs but not yet convinced...........
I think it would be unlikely that a bank would change the EWP during the term of the CD. While they probably have the right to do so, the reputational implications would probably deter them from doing so.

I've been a customer of Discover Bank for over a year (savings account only) and have been very satisfied with them. That said, I think all my transactions have been web based and I haven't actually had to speak with anyone.
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