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12-30-2017, 04:32 AM
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#1
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Recycles dryer sheets
Join Date: Nov 2017
Location: St. Petersburg
Posts: 134
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Why CDs?
With the interest rate as low as it is, what is the benefit in putting your money into CDs? What am I missing here? Isn't the interest also taxed? Other than safety, I mean.
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12-30-2017, 04:42 AM
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#2
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Thinks s/he gets paid by the post
Join Date: Dec 2015
Location: Michigan
Posts: 4,962
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Yes it is taxed. Sometimes the rates are a little higher than money market, but your $ is tied up for a while.
__________________
"The mountains are calling, and I must go." John Muir
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12-30-2017, 04:58 AM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,006
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Currently some CDs are offering higher rates than some bond funds of similar duration. With FDIC insured CDs you have no credit risk like you do with non-treasury bonds.
Some folks are investing in CDs for their cash holdings. Some CDs are currently offering better rates than money market funds and high yield savings accounts.
With options like 11 month no penalty CDs from Ally Bank, you money is not even tied up.
__________________
Retired since summer 1999.
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12-30-2017, 05:30 AM
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#4
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Full time employment: Posting here.
Join Date: Aug 2013
Location: New Jersey
Posts: 908
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Reasons to invest/own CD's:
1. Stocks are overpriced
2. To hold money for future stock buy's
3. Retirement income when you don't want to sell stock
4. Keep yourself in a lower tax bracket for tax purposes or ACA
5. Reliable income
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12-30-2017, 05:47 AM
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#5
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gone traveling
Join Date: Dec 2016
Posts: 733
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Safety...
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12-30-2017, 06:00 AM
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#6
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Thinks s/he gets paid by the post
Join Date: Feb 2014
Location: Williston, FL
Posts: 3,925
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Quote:
Originally Posted by Al18
Reasons to invest/own CD's:
1. Stocks are overpriced
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How do you know this?
Every time I make my monthly buy of my standard ETF, like HDV, it seems over-priced. And when I buy for the next month I wish I could have bought it for last month's price.
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
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12-30-2017, 06:11 AM
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#7
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2016
Location: Northern Virginia
Posts: 7,544
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Quote:
Originally Posted by LXEX55
With the interest rate as low as it is, what is the benefit in putting your money into CDs? What am I missing here? Isn't the interest also taxed? Other than safety, I mean.
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I do not see a strong value proposition in CD's but i keep looking. I think you can do better in ST bond funds without tying up your money. I understand the safety angle, but to me it is not compelling.
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12-30-2017, 06:19 AM
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#8
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2005
Location: Central MS/Orange Beach, AL
Posts: 9,067
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Quote:
Originally Posted by Senator
How do you know this?
Every time I make my monthly buy of my standard ETF, like HDV, it seems over-priced. And when I buy for the next month I wish I could have bought it for last month's price.
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Probably because of the same reason HDV seems over-priced to you when you buy. To the average layman like myself with the DOW at an all time high, it just appears obvious. But it may go to 50k in a year or two for all I know.....which ain't much.
__________________
Retired 3/31/2007@52
Investing style: Full time wuss.
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12-30-2017, 06:45 AM
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#9
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2007
Posts: 13,202
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Quote:
Originally Posted by LXEX55
With the interest rate as low as it is, what is the benefit in putting your money into CDs? What am I missing here? Isn't the interest also taxed? Other than safety, I mean.
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What are you suggesting instead?
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12-30-2017, 06:46 AM
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#10
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Moderator
Join Date: Nov 2015
Posts: 13,879
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For me, CD's replace cash. It makes more money than 0, and more than a high-yield savings account. 2% is better than 1%, etc.
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12-30-2017, 06:51 AM
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#11
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,263
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No interest rate risk for bank CDs nor credit risk if you stay within FDIC limits. Similar yield to bonds for similar terms.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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12-30-2017, 06:55 AM
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#12
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2003
Location: Hooverville
Posts: 22,983
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Quote:
Originally Posted by LXEX55
With the interest rate as low as it is, what is the benefit in putting your money into CDs? What am I missing here? Isn't the interest also taxed? Other than safety, I mean.
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It is not clear if you are asking "why CDs rather than savings accounts", or "why CDs rather than just holding more stock?". Which is your question?
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
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12-30-2017, 07:23 AM
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#13
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2013
Location: Texas
Posts: 10,863
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This has been asked many times in so many different ways. Maybe I should just cut and paste a previous response. Naw, it's cold outside, so here goes.
OK, because "for me" it fits in with my "bucket strategy". Bucket one is my foundation money. Or money that I should be able to live on for the rest of my life if everything else is lost. All of that money is in tax deferred accounts spread across as many financial institutions as I need to stay under the FDIC limits per account. All of that interest is tax deferred too until RMD's kick in and then I'll need to do "something". It's still a few years away, but I'm actually starting to think about what that "something" might be.
Bucket two is my living money and has been since I retired. Pays for utilities, taxes, insurance, food, hobbies, etc, etc. The money in this bucket is in interest bearing checking accounts, market speculation and market investing equities for the most part.
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12-30-2017, 07:23 AM
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#14
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Thinks s/he gets paid by the post
Join Date: Jul 2011
Posts: 1,281
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For me, it is like keeping some can food and water in an emergency cabinet. Not that I actually do that but it gives me piece of mind to have some money safely tucked away for a market catastrophe. A low return insurance policy that fits within my entire investment modal.
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12-30-2017, 09:29 AM
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#15
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Thinks s/he gets paid by the post
Join Date: Oct 2008
Posts: 2,777
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I have extreme stock-drop phobia. That's why I have most of my portfolio in stable value funds (even better interest rates than cd's, in my case) and cd's.
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12-30-2017, 10:08 AM
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#16
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2017
Location: City
Posts: 10,331
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I've been buying treasury bills on the auction lately. I give up a few bps vs CDs but I don't have to fool with FDIC limits and if I want to sell, for example to take advantage of a big market drop, t-bills are about as close to cash as one can get. CDs are more expensive to get out of early.
Re the market being "overpriced" here is a pretty worthwhile video featuring Gene Fama and Richard Thaler. Even Thaler agrees that small investors should have the expectation that the market is efficient, just as he is arguing that sometimes it is not. Are markets efficient? | Chicago Booth Review
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12-30-2017, 10:16 AM
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#17
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2016
Posts: 9,416
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Quote:
Originally Posted by Al18
Reasons to invest/own CD's:
1. Stocks are overpriced
2. To hold money for future stock buy's
3. Retirement income when you don't want to sell stock
4. Keep yourself in a lower tax bracket for tax purposes or ACA
5. Reliable income
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Exactly >>> safety is a good one. For me I could ride out a long down turn in markets and would never have to sell an investment. To me that is money in the bank. I don't want to sell what makes me money but I do want to weather the storm.
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12-30-2017, 12:10 PM
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#18
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Thinks s/he gets paid by the post
Join Date: Feb 2007
Posts: 3,679
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Quote:
Originally Posted by LXEX55
With the interest rate as low as it is, what is the benefit in putting your money into CDs? What am I missing here? Isn't the interest also taxed? Other than safety, I mean.
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My CDs are in a Roth IRA (PenFed 10yr @ 5% from Dec 2010 and 5yr @ 3% from 2013) so no tax.
To me the idea of no risk is what makes them a good choice.
__________________
Married, both 69. DH retired June, 2010. I have a pleasant little part time job.
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12-30-2017, 01:41 PM
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#19
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Recycles dryer sheets
Join Date: Oct 2009
Posts: 246
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With some work and patience you can get better then average rates. My CD ladder has a weighted duration of 1.6 years and yields 2.2%. Anchored by those good old PenFed and NWFCU 3% CDs that unfortunately come due end of 2018.
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12-30-2017, 02:53 PM
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#20
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gone traveling
Join Date: Oct 2016
Posts: 255
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CD's for me are interest-earning cash: they never lose value, I can get the money in a day or two, and I'm earning about 1.8% (not much worse than some of my bond funds) on the latest entries in my ladder.
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