Thanks for the response. I know this is really basic stuff, and I appreciate your patience.Hi Freebird: You have things to take into consideration on that money:
1. If you are working and want to put that in a longer term CD, let it COMPOUND
2. If you are working (and don't need THAT money immediately) and want to plan for
your future, put it in an IRA (better than CD's as anyone here can attest to)
3. If you are self -employed, don't need that other CD money, put it in a TAX DEFERRED mmoney market account
4. I could go on & on but this is what I mean about OPTIONS.
Ask yourself how soon you'd need that money. But if you have steady income, now is the time to research where to invest that excess cash. Having that excess cash is a God-send thanks to your mom - bless her soul and good fore thought!
I have a CD maturing at the end of this month. I am currently keeping my eyes open for a better rate. In this area of Michigan, I see 3.5% as being a popular number. What is it in your location?
May I ask a question about CDs?
I currently don't own any. My mom had $50K in CDs and lived off the income to supplement her SS income. She didn't seem to get a lot of extra cash flow from them. Time frame of purchase was 1970s and 1980s, and she habitually rolled them over until 2001 when she passed. I have no idea what rates, principal or term (maturity) her CDs were.
I understand about the safety of CDs and the corresponding lower interest rates. I have researched CDs online.
But I feel like I am somehow missing something...
It seems to me that current CD interest rates and the fact that the interest is taxable doesn't seem to be a win-win as an income investment.
Please correct me if I said something wrong and maybe educate me about using CDs in ladders.
If this should be a separate thread, moderators please take the right action.
That link pointed me to Yahoo Finance, which pointed me hereFreebird: Might be something at INVESTING TIPS / FINANCIAL INFORMATION / RETIREMENT TECHNIQUES or at TheRetirementWebsite.com
Pretty interesting stuff.
May I ask a question about CDs?
I currently don't own any. My mom had $50K in CDs and lived off the income to supplement her SS income. She didn't seem to get a lot of extra cash flow from them. Time frame of purchase was 1970s and 1980s, and she habitually rolled them over until 2001 when she passed. I have no idea what rates, principal or term (maturity) her CDs were.
I understand about the safety of CDs and the corresponding lower interest rates. I have researched CDs online.
But I feel like I am somehow missing something...
It seems to me that current CD interest rates and the fact that the interest is taxable doesn't seem to be a win-win as an income investment.
Please correct me if I said something wrong and maybe educate me about using CDs in ladders.
If this should be a separate thread, moderators please take the right action.
May I ask a question about CDs?
I currently don't own any. My mom had $50K in CDs and lived off the income to supplement her SS income. She didn't seem to get a lot of extra cash flow from them. Time frame of purchase was 1970s and 1980s, and she habitually rolled them over until 2001 when she passed. I have no idea what rates, principal or term (maturity) her CDs were.
I understand about the safety of CDs and the corresponding lower interest rates. I have researched CDs online.
But I feel like I am somehow missing something...
It seems to me that current CD interest rates and the fact that the interest is taxable doesn't seem to be a win-win as an income investment.
Please correct me if I said something wrong and maybe educate me about using CDs in ladders.
If this should be a separate thread, moderators please take the right action.
BTW PENFED is now paying a .25% BONUS if you ROLLOVER a maturing CD. They are granting the .25 when you set the CD to ROLLOVER ON-LINE. So their best current rate (for maturing CD's) becomes 4.25% APY.
You can "extract" the interest monthly, quarterly, semi-annually, annually, or let it "roll into" the CD, at least at PENFED and others. It does get a bit tricky at PENFED in that if a months (or more) interest is allowed to "accrue" to the CD the "value" of the CD is increased to the value of the original amount PLUS the interest. After that point withdrawals, if taken, will be based on the interest earned on the previous month end balance. They do allow you to switch your (accrue or get paid the interest) options on a monthly basis. So to answer your question if, at PENFED, you allow the interest to accrue (to get the full APY versus the APR) at maturity you now have a CD which includes the accrued interest and that amount is the rollover amount since once allowed to accrue you cannot "extract" it except at maturity or early withdrawal (with penalty). This is the only institution that does it the particular way that I know of.
To answer your question on CD ladders to provide income. As an example, in 5 successive years you can buy, say, $50K of CD's (that's a total of $250K).
In 5 years time the first CD matures so you take it's 5 years of accumulated interest and buy another 5 year CD for $50K. You then to continue to take the accumulated CD interest from each CD that matures and buy another 5 year CD.
Note that you pay taxes every year on interest that is accumulating - not at the end - for CD's that are in taxable accounts. (you get a 1099-INT from the bank or credit union)
BTW, I'm actually being serious about all this. I really want to understand these CD critters.
The clouds parted and the sunshine came through......catch me if I stumble anywhere here...
OK, each time a single CD matures, you use the principal ($50K) to buy another CD of equal value, hopefully at an equal or higher interest rate, and start all over again. I get the ladder part.
For each individual CD, the 5 yr compounded interest is mine to keep ONLY during the last year (maturity), minus Uncle Sam's cut each year of interest earned THAT year, for each and every one of 5 years as reported annually on the 1099.
I understand that the annual interest will be taxed as income, just like interest from a savings account would be, unless it was in a tax deferred account.
So I have to figure out if the total compounded interest earned on a CD every year for 5 years, being taxed annually at my current effective tax rate, will give me a positive net return after taxes and in the face of inflation for the entire period of compounding ?
No matter what, my principal is insured by either FDIC (banks) or NCUA (credit unions).
Do I get an "A" today?
Guys - TY so much.
Rocket scientists sometimes cannot grasp the obvious.
Now I can use those online interest compounding calculators in an intelligent way. All I ever took in college was Business 100.
Now I understand why my Mom put her proceeds from selling the house into CDs. She was very conservative and above all wanted to preserve her principal. Problem is I think inflation got in the way in later years because her CD interest was no longer covering her expenses.
My venture into CDs is a ways off, but I'm a long range planner type.
Back on topic...best CD rate locally is 2.75% for a 1 year, minimum $1000 CD. It is offered by my credit union. Peanuts!
Back on topic...best low principal CD rate locally is 2.75% for a 1 year, minimum $1K CD. Or, the Jumbo CD rate is 2.85% for a 1 year, minimum $100K CD.
Both are offered by my credit union. Peanuts!