CDs going up or down ?

[renferme]

I have 2 CDs coming due soon, 1 in Sept and 1 in Oct.
Best rates are generally for 1 year, but found 5.75% for 2 years at State Farm Bank. Since the rates are lower, in general, for more than 1 year, does that mean that the banks are betting that interest rates will begin falling in the not too distant future - perhaps, when the Fed quits raising rates ? The banks don't want to give out a good rate for, say 3 to 5 years, knowing that rates are headed lower.
They want to suck you into a great rate for 1 year and then screw you when you renew.
.
ps: I know most of you out there don't use CDs, but I have a good reason for buying them at the moment. I'm seeking a guaranteed rate so that in about 2.5 years I can payoff the mortgage. No guarantees with the stock market. This is specifically allocated monies to be used for the mortgage payoff. So, at the end of the 2.5 years, my mortgage will be down to just about the value of the CDs.

 

[Scrooge]

The banks don't want to give out a good rate for, say 3 to 5 years, knowing that rates are headed lower. They want to suck you into a great rate for 1 year and then screw you when you renew.

Whenever you lock your money in a CD, you take your chances with interest rates over the period of time that you have it locked for. Unless you get one of those "one penalty-free withdrawal" CDs, I suppose. On the plus side, you are not exposed to the risks that stock and bond investors have to worry about

 

[renferme]

Scrooge,
I guess I'm asking whether to buy a 1 year CD and take my chance 1 year later,
or, bite the bullet so to speak and buy a 2 year or 30 month CD at a lower rate ? What's your opinion?

 

[IBWino]

I don't think there is a simple answer to your question.  Noone knows which way rates are headed.  Current rates have likely already factored in at least one more rate hike by the Fed, and after that happens, it's anybody's guess.  Personally, 5.75% for two years sounds pretty good to me if your not going to need the money for anything between now and then.

FYI, last week, we rolled a mature CD into a new 18 month CD paying 5.5%.  Just today another local bank anounced an 18 month rate of 5.76%.   I gotta learn to ignore rates until our next CD matures in six months.

 

[Scrooge]

Scrooge,
I guess I'm asking whether to buy a 1 year CD and take my chance 1 year later,
or, bite the bullet so to speak and buy a 2 year or 30 month CD at a lower rate ?  What's your opinion?

Well, as we were discussing a few threads over, I have always been somewhat paranoid (read: very paranoid  ) about inflation, hence very reluctant to lock up my money at a fixed rate of interest. Inflation has a very unpleasant habit of sneaking up on you. But that's a visceral reaction more than anything else.

 

[d]

5 yr treasuries are just below 5%, 10 yr treasuries are just above 5% ... that suggests to me that a 24 or 30 month CD at 5.75% is a decent bet (especially given the purpose you describe)

 

[wabmester]

If you want to predict interest rate moves, take a look at the current yield curve:

link

As you can see, the market expects rates to go up a bit in the next 3 months, but then to go down a bit over the next few years.

Personally, I prefer TIPS to CDs.   The nominal yield on TIPS is equivalent to about 7% right now, and they'll continue to provide an inflation hedge going forward.   The market seems to be betting that inflation will be *very* low in the next few years, but even if the market is right, you're *probably* still looking at close to a 5% nominal yield.

 

[Mysto]

Just a few things. Good rates do go out to about 5 years. Check Fatwallet.com cd rate listing.

Current stock market bet is about a 40% chance of a rate hike on Aug 8. Who knows what happens after that - but I am building a CD ladder for a self - annuity (Yes it's the buckets ) and I am betting if this increase happens that it will be the last for a while.

 

[renferme]

check places like bankrate.com or countrywide; cd rates go down after 1 year

 

[brewer12345]

If it were me, I would buy a CD or bond that will mature when you expect to need the money. The difference in rates isn't big enough to tempt me to mismatch maturities.

 

[d]

check places like bankrate.com or countrywide

fatwallet is more complete (and up to date) http://www.fatwallet.com/t/52/320690/

 

[AltaRed]

If it were me, I would buy a CD or bond that will mature when you expect to need the money.  The difference in rates isn't big enough to tempt me to mismatch maturities.

I fully agree with a 2 year CD. Interest rate gambles are exactly that - gambles.

 

[Cut-Throat]

There are two groups of people as far as prediction of interest rates.

1.) Those that don't know where interest rates are headed.

2.) And those that don't know that they don't know.

 

[wabmester]

There are two groups of people as far as prediction of interest rates.

1.) Those that don't know where interest rates are headed.

2.) And those that don't know that they don't know.

Actually, the market has a pretty good record of predicting short-term rate changes and the federal funds rate (at least since 2000 or so):

 

[Dawg52]

I wonder how many people wished just 2 years ago that they could lock in a cd at 5+ percent.   I know I can't predict where it's going but based on what the 'experts' are saying, it may not be a bad time to lock in for awhile.

 

[d]

There are two groups of people as far as prediction of interest rates.
1.) Those that don't know where interest rates are headed.
2.) And those that don't know that they don't know.

the same can, of course, be said for Fx, the stock market, and commodities (except of course for b33v3r ch33s3 which, as we all know, is going to the moon).  but predicting the next Fed Funds target is reasonably safe as the move is not likely to be more than 25 basis points. today the "market" had about even odds for 5.25 and 5.5. (and that assumes no unexpected "happenings". that said, if the Fed wanted to make a big splash, it would do what the market did not expect ... sure would be difficult to predict that!