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Why CDs?
Old 12-30-2017, 04:32 AM   #1
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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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Old 12-30-2017, 04:42 AM   #2
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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.
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Old 12-30-2017, 04:58 AM   #3
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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.
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Old 12-30-2017, 05:30 AM   #4
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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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Old 12-30-2017, 05:47 AM   #5
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Old 12-30-2017, 06:00 AM   #6
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Quote:
Originally Posted by Al18 View Post
Reasons to invest/own CD's:
1. Stocks are overpriced
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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Old 12-30-2017, 06:11 AM   #7
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Originally Posted by LXEX55 View Post
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.
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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Old 12-30-2017, 06:19 AM   #8
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Originally Posted by Senator View Post
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.
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.
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Old 12-30-2017, 06:45 AM   #9
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Originally Posted by LXEX55 View Post
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.
What are you suggesting instead?
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Old 12-30-2017, 06:46 AM   #10
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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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Old 12-30-2017, 06:51 AM   #11
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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.
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Old 12-30-2017, 06:55 AM   #12
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Originally Posted by LXEX55 View Post
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.
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?
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Old 12-30-2017, 07:23 AM   #13
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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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Old 12-30-2017, 07:23 AM   #14
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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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Old 12-30-2017, 09:29 AM   #15
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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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Old 12-30-2017, 10:08 AM   #16
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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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Old 12-30-2017, 10:16 AM   #17
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Quote:
Originally Posted by Al18 View Post
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
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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Old 12-30-2017, 12:10 PM   #18
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Originally Posted by LXEX55 View Post
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.
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.
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Old 12-30-2017, 01:41 PM   #19
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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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Old 12-30-2017, 02:53 PM   #20
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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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