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Old 03-22-2009, 02:55 PM   #21
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Originally Posted by freebird5825 View Post
BTW, I'm actually being serious about all this. I really want to understand these CD critters.

The clouds parted and the sunshine came through......catch me if I stumble anywhere here...

OK, each time a single CD matures, you use the principal ($50K) to buy another CD of equal value, hopefully at an equal or higher interest rate, and start all over again. I get the ladder part.
For each individual CD, the 5 yr compounded interest is mine to keep ONLY during the last year (maturity), minus Uncle Sam's cut each year of interest earned THAT year, for each and every one of 5 years as reported annually on the 1099.
I understand that the annual interest will be taxed as income, just like interest from a savings account would be, unless it was in a tax deferred account.
So I have to figure out if the total compounded interest earned on a CD every year for 5 years, being taxed annually at my current effective tax rate, will give me a positive net return after taxes and in the face of inflation for the entire period of compounding ?
No matter what, my principal is insured by either FDIC (banks) or NCUA (credit unions).

Do I get an "A" today?
A
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Old 03-22-2009, 03:00 PM   #22
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Keep it simple, for instance, if you are in the 15% tax bracket, you would ALWAYS get to keep at least 85% of the interest (subject to state taxes, if any). And if the CPI (a imperfect measure but as good as any) is say 3% then the interest you keep is at least 82%. So if you get $100 of interest you would keep $82 of it. Kind of an oversimplification but as good as any IMO.


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Old 03-22-2009, 03:19 PM   #23
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Guys - TY so much.
Rocket scientists sometimes cannot grasp the obvious.
Now I can use those online interest compounding calculators in an intelligent way. All I ever took in college was Business 100.
Now I understand why my Mom put her proceeds from selling the house into CDs. She was very conservative and above all wanted to preserve her principal. Problem is I think inflation got in the way in later years because her CD interest was no longer covering her expenses.
My venture into CDs is a ways off, but I'm a long range planner type.

Back on topic...best low principal CD rate locally is 2.75% for a 1 year, minimum $1K CD. Or, the Jumbo CD rate is 2.85% for a 1 year, minimum $100K CD.
Both are offered by my credit union. Peanuts!
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Old 03-22-2009, 03:25 PM   #24
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Originally Posted by freebird5825 View Post
Guys - TY so much.
Rocket scientists sometimes cannot grasp the obvious.
Now I can use those online interest compounding calculators in an intelligent way. All I ever took in college was Business 100.
Now I understand why my Mom put her proceeds from selling the house into CDs. She was very conservative and above all wanted to preserve her principal. Problem is I think inflation got in the way in later years because her CD interest was no longer covering her expenses.
My venture into CDs is a ways off, but I'm a long range planner type.

Back on topic...best CD rate locally is 2.75% for a 1 year, minimum $1000 CD. It is offered by my credit union. Peanuts!
I love the low interest rates. Eventually that will shove a majority of people back into stocks.
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Old 03-22-2009, 04:31 PM   #25
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Back on topic...best low principal CD rate locally is 2.75% for a 1 year, minimum $1K CD. Or, the Jumbo CD rate is 2.85% for a 1 year, minimum $100K CD.
Both are offered by my credit union. Peanuts!

Anyone can join Pen Fed and get that 4%...
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Old 03-22-2009, 04:44 PM   #26
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Anyone can join Pen Fed and get that 4%...
Yep, like the man said: https://www.penfed.org/howToJoin/overview.asp

Scroll down and look at #7...
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Old 03-22-2009, 04:53 PM   #27
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Anyone can join Pen Fed and get that 4%...
Oh, I have that page bookmarked and a calendar reminder to revisit it when I am ready to jump into the CD pool. I have X amount to DCA per month and it is pointed at stocks right now.
I really do learn a lot here (when I'm not pitching slow ones over the plate ) You guys are great!
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Old 03-22-2009, 11:25 PM   #28
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My credit union just lowered their cd rates drastically. Was 3.0 % 2 weeks ago for a 24 month. Now the 24 month is down to 1.6 % !!! The best rate is the 7 month, for some reason, at 2.25 %. All the other terms hover around 1.6 %. Awful. Maybe because of the recent scumfest in the "wholesale" credit union sector.
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Old 03-23-2009, 08:29 AM   #29
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Maybe because of the recent scumfest in the "wholesale" credit union sector.
When few people are borrowing, there's little need to attract more deposits by offering higher rates on deposits. When everyone is saving and no one is borrowing, the return on savings is going to stink. Simple supply and demand.
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Old 03-23-2009, 08:50 AM   #30
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One of the banks in my area got creative last week. A $10k or more cd for 5 years was based on the S&P 500. Whatever the S&P was on the day you opened the cd, would determine if you receive interest after 12 months. They would pay 6% if the S&P was up by just one point. If it went down 1 point, you got nothing. This goes on each year for the duration of the cd term. If you had to cash in the cd, there would be a 15 % penalty....
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Old 03-23-2009, 09:22 AM   #31
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One of the banks in my area got creative last week. A $10k or more cd for 5 years was based on the S&P 500. Whatever the S&P was on the day you opened the cd, would determine if you receive interest after 12 months. They would pay 6% if the S&P was up by just one point. If it went down 1 point, you got nothing. This goes on each year for the duration of the cd term. If you had to cash in the cd, there would be a 15 % penalty....
I suspect that instead of paying "interest" they buy call options on the index which either expire worthless (giving you no interest that year) or allow them to give the depositor a share of the gains in the options.

Or something like that.
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