no cd's what to do

[frank]

I have 500k in a savings account at 1.4 percent. I have another bunch of cd's coming due early 2014. I have always been a cd kind of person, but with the rates the way they are, I am being forced into funds or equities. I have no history with these instruments. I have read that a lot of you are happy with franklin income fund or vanguard income fund. If it were you, where would you be looking in today's market for the safest investment with the best income? thanks

frank

 

[Dawg52]

No easy answer. Here is a recent discussion where some are moving from bonds to CD's for safety. If you are moving to equities and bonds, you are taking on more risk. But it all depends on your time horizon. Do you have the personality to ride out the volatility associated with equities and bond funds?

http://www.early-retirement.org/forums/f28/thinking-of-moving-from-bonds-to-cds-66601.html

 

[sengsational]

I have always been a cd kind of person, but with the rates the way they are, I am being forced into funds or equities.

Frank, You might think twice about changing your asset allocation to chase returns (at increased risk). Have you looked at TreasuryDirect? You can buy TIPS (inflation protected government bonds). There is no safer place for your money, and protected against inflation. Buy them at auction and hold them to maturity and you've locked in an inflation protected return, which sounds a lot like what "a cd kind of person" would want.

 

[rbmrtn]

In this environment, 1.4% on a savings account isn't bad at all. That is better than many short term bond funds. Is this FDIC covered, you exceed the coverage limits if this is all in one account.

Franklin typically charges a front end load on its funds, I wouldn't do that. Many income funds today are just common stock funds, Franklin income is mostly dividend paying common stock. You can buy those yourself and save the expenses.

 

[enjoyinglife102]

I'd stick with your CD strategy. To me, bailing because current rates are low is no different than scrapping an equity strategy when the market tanks. Both instances represent attempts to time the market and not a strategy at all. Just keep laddering CD's and when/if rates rise, you'll have money coming due to take advantage of the higher rates. Sure, it sucks to lock up money for 5 years at around 1.8% but if rates do rise, other alternatives could easily lose money over that time period.

 

[Mulligan]

Frank, I would seriously heed to the advise of the above. Any time these words are coming from you;"forced into the market" and "no experience",I would be very hesitant to change course. Until you have a total well rounded investment strategy/plan with an understanding of what you are trying to accomplish.

 

[HighRoller]

Any time these words are coming from you;"forced into the market" and "no experience",I would be very hesitant to change course. Until you have a total well rounded investment strategy/plan with an understanding of what you are trying to accomplish.

+1

 

[willow]

brokered cd's could be an option

 

[frank]

the bank says that the amount is covered by fdic if me and my wife's name are both on the account is that true?

 

[REWahoo]

True: you have $250K FDIC coverage per person.

 

[rbmrtn]

the bank says that the amount is covered by fdic if me and my wife's name are both on the account is that true?

Yes, for a joint account it is $250k per co-owner.

FDIC: Deposit Insurance Summary

 

[pb4uski]

But do you have savings and checking accounts with that same bank or just the CDs?

IOW, if you have $500k in joint CDs that would be covered but if you had $25k in savings/checking at the same financial institution you would be $25k over the limit.

 

[dtbach]

If you are 30, dip into some Vanguard funds like Wellsey. If you are over 50 and have never experienced market ups and downs, stick with your CD's.

But you do know the risk that your returns are not keeping up with inflation right??

 

[JOHNNIE36]

But do you have savings and checking accounts with that same bank or just the CDs?

IOW, if you have $500k in joint CDs that would be covered but if you had $25k in savings/checking at the same financial institution you would be $25k over the limit.

The $250K coverage is per person, per account. The $25K in checking you are talking about would be covered also.

 

[REWahoo]

frank, to verify what everyone is telling you about FDIC coverage you can plug your numbers into this FDIC calculator: https://www2.fdic.gov/edie/index.html

 

[rbmrtn]

The $250K coverage is per person, per account. The $25K in checking you are talking about would be covered also.

[FONT=arial, helvetica, sans-serif]The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. [/FONT]

You would be over the joint account limit if it is all at the same bank.

 

[JOHNNIE36]

[FONT=arial, helvetica, sans-serif]The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. [/FONT]

You would be over the joint account limit if it is all at the same bank.

I'm thinking that if I have a IRA CD at a bank for $250K and also have another CD for $50K each account would be covered. Am I wrong?

 

[rbmrtn]

I'm thinking that if I have a IRA CD at a bank for $250K and also have another CD for $50K each account would be covered. Am I wrong?

No that's correct as I understand it ( as always qualified I might be wrong ). Maybe I read your first post wrong but for a joint account the max insurance is 500K for each institution for any combination of accounts ( checking, savings, CDs etc ). If the OP already has 500k in one bank then the limit has been reached for that bank.

Another post linked the calculator on the FDIC site which can be used to check this.

 

[daylatedollarshort]

For our non-stock investments we have a mix of TIPS bought at auction, I bonds, CDs, a floating rate fund, money markets, a "high" yield checking account, stable value funds in the the 401Ks, and an international bond fund.

I'm moving the money market funds to short term CDs for small yields and the FDIC insurance.

 

[pb4uski]

The $250K coverage is per person, per account. The $25K in checking you are talking about would be covered also.

Not true. If they had $500k in jointly owned CDs and $25k in a joint checking account, they would be $25k over the FDIC coverage limits.

If the checking account was for him (or her) rather than joint then they would be covered.

 

[Richard8655]

Going against the grain here. I don't think CDs are a good strategy. Even at 1.4%, that'll not even keep up with inflation hovering around 1.5%. Being too conservative can be a bad strategy too.

I'd recommend a solid, relatively stable, large company dividend-paying ETF. Consumer Reports (June, 2013) recommended VYM (YTD 11.73%), and this might be a good place to park a large amount of cash in the current environment of minuscule bank interest rates.

But yes, a bit of a higher risk here and it depends on your tolerance and immediate need to access your cash. But for me well worth it.

 

[Koolau]

It's true that current CD rates are deplorable. But if you choose to continue laddering CDs into the future, one thing you might do is go for CDs with shorter penalty periods (90 or 180 days). That way, if rates go up significantly, you can dump your old CD at a relatively small loss of interest and move into a better CD rate. The math isn't too complicated to see what the break-even point is.

As a conservative investor myself, I too wish there were ways to make a decent return on CDs/cash savings. Since there really isn't, you either have to take more risk or just bump along, looking for "specials" or playing some bank's silly game (2% checking accounts with $40K minimums or similar.) In any case, this is a period when you will (if you are lucky) just about keep up with inflation. If you can live with that, just go for it. If that will either delay your ER plans (or crimp your current ER) you may have to educate yourself about the riskier investments. No easy answers here. The good news is that (officially) right now, inflation is under control. I seriously doubt that (from personal experience, but then again, why would the gummint lie to us)

All to say you pay your money and make your choice. Right now, choices are limited. YMMV as always.

 

[kaneohe]

I'm thinking that if I have a IRA CD at a bank for $250K and also have another CD for $50K each account would be covered. Am I wrong?

You are correct in this example because the IRA and the other personal non-IRA CD are considered different registrations. In the other example in this thread a personal non-IRA CD and a checking account would be considered the same registration if titled the same way. Use the FDIC calculator suggested previously to be convinced.

 

[frank]

my main objective is to keep up with inflation, while a profit would be nice. I would not be hurt by a couple years at low rates but this is getting tiresome.

 

[gauss]

It's true that current CD rates are deplorable. But if you choose to continue laddering CDs into the future, one thing you might do is go for CDs with shorter penalty periods (90 or 180 days). That way, if rates go up significantly, you can dump your old CD at a relatively small loss of interest and move into a better CD rate. The math isn't too complicated to see what the break-even point is.

FWIW Ally Bank has only a 60 day early wd penalty on their high-yield 5 year CDs.

I opened up 5 of them several months ago with the idea that if I need any of the money early I can break one or two of them and only pay the small penalty for the ones broken. Also Ally has no minimums for the CDs.

-gauss