Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
If interest rates rise will CD's immediately follow?
Old 02-24-2015, 11:25 AM   #1
Full time employment: Posting here.
UnrealizedPotential's Avatar
 
Join Date: May 2014
Posts: 573
If interest rates rise will CD's immediately follow?

I was just wondering because CD rates have been pathetic for so long. It is a long, long way to the 4%-5% return that would make it attractive for me. However, I think such a return is badly needed and I admit we are probraly years away from such rates on a CD. I would love to see the beginnings of a march upward on rates. Would it take another catalyst for CD rates to go up here from the bottom?
__________________

__________________
Understanding both the power of compound interest and the difficulty of getting it is the heart and soul of understanding a lot of things. Charlie Munger
UnrealizedPotential is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 02-24-2015, 11:50 AM   #2
Thinks s/he gets paid by the post
Sunset's Avatar
 
Join Date: Jul 2014
Location: Chicago
Posts: 4,727
New CDs will rise pretty much in lockstep (my guess).
Assuming 2015 we get a 0.5% increase in short term rates, the short term cds will rise, but long term ones will rise less. (all my guess)
__________________

__________________
Sunset is offline   Reply With Quote
Old 02-24-2015, 11:56 AM   #3
Thinks s/he gets paid by the post
2B's Avatar
 
Join Date: Mar 2006
Location: Houston
Posts: 4,330
CDs typically pay a little above their equivalent maturity US bond/note and are guaranteed by the US government. If CD rates go up, they will follow the increase in US bonds and continue to yield a little above them.

The resale value of existing CDs will, of course, drop but they will still be redeemed at par at maturity.
__________________
The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane -- Marcus Aurelius
2B is offline   Reply With Quote
Old 02-24-2015, 12:32 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,465
Short-term CDs should.
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is offline   Reply With Quote
Old 02-24-2015, 01:57 PM   #5
Thinks s/he gets paid by the post
 
Join Date: May 2014
Location: Utrecht
Posts: 2,212
Immediately I don't know, typically there is a delay in reaction (both upwards and downwards) where I live (EU zone), up to one year or so.

It also depends on competitive dynamics. For example a new bank launching offers temporarily high rates, dragging the rest upwards. Or inversely a competitor withdraws and passive (or active ) collusion keeps rates low for a bit longer.
__________________
Totoro is offline   Reply With Quote
Old 02-24-2015, 03:54 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Mulligan's Avatar
 
Join Date: May 2009
Posts: 7,377
Quote:
Originally Posted by 2B View Post
CDs typically pay a little above their equivalent maturity US bond/note and are guaranteed by the US government. If CD rates go up, they will follow the increase in US bonds and continue to yield a little above them.

The resale value of existing CDs will, of course, drop but they will still be redeemed at par at maturity.

If you can stand to wait long enough to redeem at par! I bought a couple of 10 year brokerage CDs about 4-5 months ago. First time I have bought a brokerage one. I had no idea they were going to track the daily value of them in my total account. So I couldn't resist today and sold, receiving in effect 18 months worth of interest in my Roth account.


Sent from my iPad using Tapatalk
__________________
Mulligan is online now   Reply With Quote
Old 02-25-2015, 10:44 AM   #7
Thinks s/he gets paid by the post
OAG's Avatar
 
Join Date: Jun 2006
Location: Central, Ohio, USA
Posts: 2,598
What makes you think interest rates generally will rise any time soon? Of course if they do CD rates will too (my guess). Have you seen/read the FMOC Chairs comments on rates from the News Conference yesterday? Not very optimistic on timing for any rate increases.
__________________
Vietnam Veteran, CW4 USA, Retired 1979
OAG is offline   Reply With Quote
Old 02-25-2015, 11:17 AM   #8
Thinks s/he gets paid by the post
2B's Avatar
 
Join Date: Mar 2006
Location: Houston
Posts: 4,330
Quote:
Originally Posted by Mulligan View Post
If you can stand to wait long enough to redeem at par! I bought a couple of 10 year brokerage CDs about 4-5 months ago. First time I have bought a brokerage one. I had no idea they were going to track the daily value of them in my total account. So I couldn't resist today and sold, receiving in effect 18 months worth of interest in my Roth account.
I had some TIPS and sold them a few year back when I got to pocket several years of interest via untaxed capital gains. The kept going up in price after that.

I can't say I won't trade CDs but the primary function of my CD ladder is to be my fixed income portion of my portfolio. I harkens back to trying to be a market timer which never went well for me.
__________________
The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane -- Marcus Aurelius
2B is offline   Reply With Quote
Old 02-25-2015, 12:09 PM   #9
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,820
I went to the Federal Reserve online data base: Interest Rates - FRED - St. Louis Fed

Comparing 6 month CDs and 6 month Treasuries, I thought the moved "pretty closely" between 1964 and 2013. But, that's just history.

( Note that you can use FRED to put two data series on one graph. )
__________________
Independent is offline   Reply With Quote
Old 02-25-2015, 01:16 PM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Mulligan's Avatar
 
Join Date: May 2009
Posts: 7,377
Quote:
Originally Posted by 2B View Post
I had some TIPS and sold them a few year back when I got to pocket several years of interest via untaxed capital gains. The kept going up in price after that.

I can't say I won't trade CDs but the primary function of my CD ladder is to be my fixed income portion of my portfolio. I harkens back to trying to be a market timer which never went well for me.

I certainly can't justify the decision to sell based on any rational decision. I just assumed wrongly that buying the brokered CD would just show a purchased amount until I tried to sell it. I had no idea they were going to post an amount into my daily asset value based on daily swings. That really annoyed me for some inexplicable reason, so I decided I might as well buy something that will give it a reason to move up and down.


Sent from my iPad using Tapatalk
__________________
Mulligan is online now   Reply With Quote
Old 02-25-2015, 02:38 PM   #11
Thinks s/he gets paid by the post
Lakewood90712's Avatar
 
Join Date: Jul 2005
Posts: 1,316
I don't see anything that would raise cd rates significantly. All of the central banking systems are willing to pump money in to keep rates low for so called economic stimulus purposes , it is SOP now.Everyone is doing it, no end in sight.

The financial returns for savers , including retirees is about at the bottom of the priority list.
__________________
“The finance industry is 5% rational people and 95% shamans and faith healers.” - Charlie Munger
Lakewood90712 is offline   Reply With Quote
Old 02-25-2015, 04:45 PM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,424
Quote:
Originally Posted by UnrealizedPotential View Post
...Would it take another catalyst for CD rates to go up here from the bottom?
In theory, as the economy gets stronger the stimulative effect of low interest rates is no longer needed and it is safe for the FED to increase rates.

Also, if the economy starts to overheat and inflation increases, then increased interest rates would be a way to turn down the heat some. That said, I see no indications of anything like this in the near future.
__________________

__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
The way to ER immediately? timo2 Other topics 47 10-15-2013 07:01 PM
Will CD Interest Rates Rise if Borrowing Rates Rise? John Galt III FIRE and Money 5 07-29-2011 12:58 PM
The Rise and Fall and Rise of Iceland haha FIRE and Money 6 05-14-2011 01:28 PM
did you immediately start living a life of relaxation or did it take a while? retiringat50 Life after FIRE 35 07-28-2008 06:14 PM
When interest rates rise.... wabmester FIRE and Money 36 02-06-2004 05:38 AM

 

 
All times are GMT -6. The time now is 01:12 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.