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summer2007 · 07-09-2008, 04:38 AM

Are Treasury bonds and other treasury products really that much safer than buying CD's?

It seems that you can get better interest rates on CD's and have the FIDC insurance on them.

Just wanted to see what others thought.

Jim

OAG · 07-09-2008, 05:24 AM

I agree. FDIC/NCUA Insured CD's have been safe for me over more than the past 30 or so years and have always provided the best rates. Currently maintain a CD ladder going out about 7 years with a combined average rate of 5.7%. Hard to match that rate currently but long term CD rates still beat the Treasury products.

bamsphd · 07-09-2008, 11:50 AM

From a simple "will I someday get back the same number of dollars I invested?" point of view, I don't think there is a noticeable difference in safety between FDIC insured CDs and US Treasuries.

I think which makes more sense depends on how much you are investing, how likely you are to want your money early, how settled the markets are at the time you invest, how high your state taxes are, how broadly you search for high CD rates, and how well you remember stagflation.

Obviously if you exceed the FDIC limits then Treasuries are safer, unless you invest through lots of different banks which can be a hassle.

If you unexpectedly want your money early, I personally think Treasuries "on average" win, since you at most only lose "on average" the commission and spread. Though if you are investing very small amounts the commission can be significant. Since your bond is now a shorter term bond paying a longer term coupon, you have a real chance at making money by cashing out early. Since treasuries tend to do well during financial crisis which also increase your need to sell the treasuries early, again you have fair odds of making a profit. CD's always have a penalty for bailing early. However, if you prefer the certainty of a less attractive deal, to good odds of a better deal, then CDs are the way to go.

The flip side of treasuries doing well during a financial crisis is that they tend to be relatively poor purchases during a financial crisis. They are certainly "not on sale" as I write this.

Treasuries are immune to state and city income taxes, which may or may not be an issue in your situation.

If you use the web to search for the best CD rates, I think you can often compete with treasuries of the same duration. However, I consider treasuries to be more liquid, so it is a bit of an apple/oranges comparison.

While treasuries are usually treated as risk free and totally liquid, never underestimate the ability of politicians to mess things up. A game of chicken between congress and the president could at least cause a temporary hiccup in the treasury markets. While if you spread your CDs across multiple banks, the odds are good at least some of them will always have their doors at least part way open.

TIPs are much safer in the face of possible inflation spikes than CDs or conventional treasuries. However, as always, safer investments don't pay as well, except when bad things happen to the less safe investments.

Both investments are very conservative and pretty darn safe from anything but inflation. However, you don't have to pick. You can also build a mixed ladder of CDs, conventional treasuries and TIPs if you want extreme safety. Even with safe investments, diversification can be a good idea.

summer2007 · 07-11-2008, 02:30 AM

Thanks OAG and bamsphd

That gives me some things to think about.

The 5.7% is great!

I didn't think about how much more liquid the treasuries are until you mentioned it.

I have been looking at the CD's offered on the online brokers...I invested in retirement accounts last year and all I did was loose like 10%+ so far! So even 4% would be like 14-15% better than what I did with that.

Jim

cute fuzzy bunny · 07-11-2008, 09:10 AM

I think the short answer is that if you fail to get your money back on either one, getting your money back probably isnt going to be everyones biggest problem...

saluki9 · 07-11-2008, 09:14 AM

Quote:

Originally Posted by cute fuzzy bunny

I think the short answer is that if you fail to get your money back on either one, getting your money back probably isnt going to be everyones biggest problem...

That about covers it. If this is a real concern I would suggest investing in a box of MREs and a crate of ammunition.

cute fuzzy bunny · 07-11-2008, 09:15 AM

Neither one tastes very good.

brewer12345 · 07-11-2008, 09:23 AM

Quote:

Originally Posted by saluki9

That about covers it. If this is a real concern I would suggest investing in a box of MREs and a crate of ammunition.

You forgot gold! gold!!! GOLD!!!!!!!

saluki9 · 07-11-2008, 09:23 AM

Quote:

Originally Posted by cute fuzzy bunny

Neither one tastes very good.

True, but one of them can help you figure out how the neighbor's food tastes.

brewer12345 · 07-11-2008, 09:26 AM

Quote:

Originally Posted by saluki9

True, but one of them can help you figure out how the neighbor's food tastes.

Their MREs probably won't taste any better than yours.

ziggy29 · 07-11-2008, 09:53 AM

Quote:

Originally Posted by cute fuzzy bunny

I think the short answer is that if you fail to get your money back on either one, getting your money back probably isnt going to be everyones biggest problem...

Precisely.