CD or Treasury bills and notes?

[fanfairs]

Hope someone can help me with my question.  Nearly two months ago I purchased a 5 year CD at 3.95% for $30,000 (to purchase a house when I return to the States in about 3 years).  Now I'm wondering if I should have instead purchased Treasury bills/notes through TreasuryDirect (still have to figure out how to do this) ... I have no experience with bills or notes so I'm not sure if it's a better option for me or not.  John seems to think so in his article: "Should I invest in mutual funds or individual stocks and bonds?"

If Treasuries are the way to go, which kind?  Fixed principal bills/notes (is that right?) or TIPS?  If I cancel my CD now I'll only loose 2 months of interest.  Also how can I compair the current rate of bills/notes with my CD rate to know if I'd get a better deal in Treasuries?  Should I switch to Treasuries or just stick with my CD?

I'd appreciate any insight anyone could provide.

Natalie

 

[Mr._johngalt]

Keep your CD.

 

[Ted]

Anyone who takes JohnGalt's advice should bear in mind that he has a time horizon of perhaps 1 year. So it is highly unusual that in this case I agree with him.

CD's are generally not very good investments because they pay a relatively low rate of interest (which is taxable) and they are not very liquid. In this case, however, you have an "old" CD that will pay a higher rate of interest over its remaining life than a "new" short-term bill or bond would, at current interest rates.

When it comes time to reinvest the money from the CD, however (assuming that you don't spend it) there will probably be better ways to invest it. The "best" way will depend on your time horizon, your other investments, and your tax status. There is no simple answer. You should, however, consider TIPs or a mutual fund that holds them. See the related discussion in this forum and on the U.S. Treasury website.

 

[BigMoneyJim]

Anyone who takes JohnGalt's advice should bear in mind that he has a time horizon of perhaps 1 year.

I hope he'll live longer than that.

But I will agree he's much more conservative than the typical ER-minded person. It's good for people to know that, but it's also good to see that one can make ends meet with such safe investments.

For Natalie, I also agree that after the CD matures it greatly depends on the time horizon and risk tolerance as to where to put the money. Picking on JohnGalt again, he can't stand to lose any value in his investments, but in my case I generally have a 10-30 year horizon, and the consensus seems to be that a high concentration of equities are right for me, and I'm comfortable enough that I feel I can ride out the lows. But JohnGalt is retired and I'm still working, so there's that to consider, too.

 

[fanfairs]

Thanks to all three of you for your input. So I'm assuming, in this case, your all agreeing I should stay with my CD?