CD Rates are REALLY LOW!

[ShokWaveRider]

I did manage to secure a 3month CD rate for 2.23% today. I nearly cry just writing the number down. I laid down quite a chunk of cash also. And I had to change my financial institution to do it. I am finding these people are quite brazen. They think that because they have your cash, that they have you for life. The difference was quite large. I was asking about renewing at my original institution, they quoted me 1.27% for 6 months and would not negociate. Being an ER'ee, I have a lot of time so... I strolled down the road, and got 2.23%. I went back, got a cashiers check and deposited it at the place down the road. Other than getting some much needed excersise, I got some satisfaction of seeing the managers face when I closed the account. I really believe, they think one will be complacent and accept their poultry offers.

I should have explained that is why I am retired and he is not... . but hey I am not like that.

I have another maturing on Monday. I secured the 2.23% on those funds also. We will see what happens.

Ian

 

[RYD]

We had a similiar activity. We have delt with the same bank for a long while. WHen we tried to get a rate better than listed they basically said NO GO. We were rolling over $200k+. My wofe finally spoke to the bank manager who was more than happy to match a rate I had found at ING. As it turned out the 1- 800 people who handle the day to day are contract.

Lesson is push hard and do not settle.

 

[Mr._johngalt]

Up until just recently I was pretty much 100% CDs
with any monies available for investment. I know 2.23%
is a pretty good CD rate, but I finally swiched out of CDs
not so much because I couldn't live on that return,
but mostly because I couldn't accept it psychologically.
Thus, I am still knocking down around 6-7% but taking a lot more risk (no stocks though).

 

[ShokWaveRider]

At this point, I am not prepared to take any risk. Maybe next year. But for now, I would rather not. We are still managing on my wife's salary quite happily without withrawing anything from our capital so it will have to do for now.

If I could get 6% with any level of security, I would be living like a king. It seems to be like pulling teeth to find our how to get such returns safely.

Ian

 

[baanista]

My goal right now is not to lose money. I suspect that there is still another shoe to drop in the equity market. Interest rates are so low that it seems risky to lock in to them for any length of time. The flood of cheap money seems to be building a property bubble. I fear that we won't see a good investment environment until the excesses get worked out of the system.

So , for now I am living with low rates and spending a little principal while I wait for some value to appear in the markets.

 

[ShokWaveRider]

Baanista:

My Sentiments Exactly. 3 months is my Lot as far as long term investments are concerned., I still think 2.23% is pretty go for now.

Ian

 

[ShokWaveRider]

Well: I went back to the institution with my second wodge of cash for a maturing CD and got 2.2% again for 3 months. I heard Greenspan was intending on keeping interest rates low for some time.

In Canada one can get 3% for a year with ING. But now we are gambling the Dollar will remain low for some time.

Anyone got any opinions on the US dollar value. It is hard to read the Bureaucrats on this one. Any way one can look at Dollar futures?

Ian

 

[Mr._johngalt]

Second guessing going on here. Took a big chunk of my meager stash out of CDs and went heavily into bonds and bond funds just as the bond bubble was bursting
and interest rates were bottoming. I may not be
psychologically suited to this. Initial investment is down
(although the rates are okay). I have a real hard time
not knowing that the "base" is secure. I could live with
the low CD returns, but looking at 2.5% vs. around 6%
in long term investment grade bonds pushed me away from my traditional bank products. Now I feel like a long
term CD or TIPS would have been better. Anyone else
out there going through this?? Help!

 

[Whakamole]

a real hard time
not knowing that the "base" is secure. I could live with
the low CD returns, but looking at 2.5% vs. around 6%
in long term investment grade bonds pushed me away from my traditional bank products. Now I feel like a long
term CD or TIPS would have been better. Anyone else
out there going through this?? Help!

If you think we'll be seeing inflation rearing it's ugly head, TIPS are great. I think there is a good chance of this... see this article for some reasons:

http://www.usatoday.com/money/perfi/columnist/netgains/2003-08-08-whip-inflation_x.htm

Gold also works.

If you think we will see deflation (and a case can be made for this as well, though it would be extremely painful for the government's debt handling), the longest term CD or preferably bond would be idea.

 

[ShokWaveRider]

How does one buy TIPS? Without paying lots of fees.

 

[Whakamole]

How does one buy TIPS? Without paying lots of fees.

You can own the Vanguard TIPS fund.

or Treasury Direct:
http://www.publicdebt.treas.gov/sec/sectrdir.htm

 

[ShokWaveRider]

I did not think you could Buy TIPS from Treasury Direct. I cannot find the bit that tells you you can anyway.

 

[haha]

I could live with the low CD returns, but looking at 2.5% vs. around 6% in long term investment grade bonds pushed me away from my traditional bank products.

John, it is very hard to help with only a smattering of information. However, if you can survive with short rates, I would do it. While it is not possible to predict interest rates, in the entire history of the US, we can confidently say there are high zones, and low zones. We are currently in a low zone. Although you have lost some principle, you have no guarantee that more loss is not coming.

It is easy to underestimate the speed and distance that interest rates can move! So especially if you feel that you are susceptible to worry about losses, it could be a good idea to step aside.

Mikey

 

[ShokWaveRider]

When Interest rates go up to overt 8% again I will lock up a wodge of cash for 10 years. Till then, that Bologna sure tastes good. Hmmmmmm.

Ian

 

[JG]

I did not think you could Buy TIPS from Treasury Direct. I cannot find the bit that tells you you can anyway.

Treasury Direct used to be the place for treasuries. It's now only for I and E savings bonds. The new link for Treasuries is http://www.publicdebt.treas.gov/sec/sectdes.htm.

 

[Cut-Throat]

Second guessing going on here.  Took a big chunk of my meager stash out of CDs and went heavily into bonds and bond funds just as the bond bubble was bursting
and interest rates were bottoming.  I may not be
psychologically suited to this.  Initial investment is down
(although the rates are okay).  I have a real hard time
not knowing that the "base" is secure.  I could live with
the low CD returns, but looking at 2.5% vs. around 6%
in long term investment grade bonds pushed me away from my traditional bank products.  Now I feel like a long
term CD or TIPS would have been better.  Anyone else
out there going through this??  Help!

Principal secured investments will always go down in value. This is a basic rule of investing.

A future return of 6-8% in a principal guaranteed investment, may make you feel better, but inflation under those circumstances will be higher than that rate of return. That is why every expert advises to have a blend of stocks mixed into your portfolio for the long haul. The stock market will have its ups and downs and experts like Buffet and Bogle are only predicting returns of 5-7% over the next decade or so. But, if you hang in there 5% ain't bad.

 

[ShokWaveRider]

You can own the Vanguard TIPS fund.

or Treasury Direct:
http://www.publicdebt.treas.gov/sec/sectrdir.htm

I just looked on the Vanguard site, which fund is the TIP fund?

Ian

 

[Woolybully]

Vanguard tips fund

vipsx

I've owned it for a couple of months - it seems rather volatile for a bond fund.

 

[Mr._johngalt]

Thanks Cutthroat, but I know being in stocks would make me feel even worse. As far as the "long haul",
I no longer have one . Expect that I will always have a
fairly good portion of my base in real estate. Maybe that will have to provide my inflation protection. I also hold some highly rated corporate notes, all paying over 7%. The market value on those is even down a bit. This was surprising to me. I can see how
a long term bond at 5% would be down if you can buy one paying 6%. Anyway, I guess it proves your point
about such investments. I am less sure about future
inflation being a problem, although I will admit it needs
to be considered .

 

[Whakamole]

I think inflation will be a big issue (long story as to why, itulip.com has a decent explanation.) VIPSX has treated me well.

 

[Mr._johngalt]

Whakamole, if you are right about "inflation --big issue"
then I guess I will have a problem down the road.
Of course someone said (forget who) "I have all the money I'll ever need, if I die at 3 o'clock today!"

 

[unclemick]

bonds 101 refresher. I've aways had trouble keeping this straight?
1. I buy 'a bond" and hold to maturity. then I get the stated interest plus my principal back - if they don't default.
2. I buy a 'bond fund' then I sort of get the interest going in, but the principal will go up and down as interest rates change. Depending on when/if I sell, I may or come out on Principle.

 

[Mr._johngalt]

Re. "Bonds 101 refresher", it's the "if they don't default"
and the "sort of" that give me heartburn. Oh well, we
all take a big chance just getting out of bed in the morning. In fact, this is a big reason why I went into bonds, ie. the feeling that it's all a big crap shoot anyway. I did notice that the bond fund I chose has over 4 billion $ in it, so someone besides me must think
it's a good bet.

 

[unclemick]

Great chickenheart that I am, our bond ownership is through the back door via Vanguard Lifestragety funds moderate and conservative - roughly 50% stocks and 50% bonds - and they rebalance for us. But I did put 10% into Hi yield corporate on her side of the ledger and 10% into REIT index on my side to try to bump up income a little. They will move up and down so I try to stay calm and do nothing like Garflield. Unfortunately, I've been watching the stock market since 1965 and probably won't stop anytime soon.

 

[Ted]

I buy a 'bond fund' then I sort of get the interest going in, but the principal will go up and down as interest rates change. Depending on when/if I sell, I may or come out on Principle.

Great chickenheart that I am, our bond ownership is through the back door via Vanguard Lifestragety funds moderate and conservative - roughly 50% stocks and 50% bonds - and they rebalance for us. But I did put 10% into Hi yield corporate on her side of the ledger and 10% into REIT index on my side to try to bump up income a little.

Unclemick is a bit fuzzy on his bond principles, but nevertheless he's investing intelligently.

The "principal" of a bond is the same as the "par value." It is the lump sum amount that will be paid at maturity (barring default). The "current value" or "market price" of a bond is typically different, such that the fixed interest payments and the convergence of the market price with the par value as the bond matures, will provide a yield to maturity that is in line with prevailing interest rates for other bonds having the same time to maturity.

The only kind of bonds that I know of that have a par value that varies (increases) are TIPs. Their market value therefore tends to keep increasing also, although it is possible for it to have temporary, relatively modest declines of the type that occurred recently.