I am relying on interest income on FDIC accounts, what to do now?

[DrgLrd]

Today I'm happy because I'm getting between 3.5% to 4% in various savings accounts, 1m cash.



I'm concerned about tomorrow, if rates get cut.



Are the only safe options long-term CDs?

 

[Graybeard]

You will never keep up with inflation in fixed income. Even now with upper 4% to lower 5% treasuries and FDIC insured CDs, inflation is 6%. Add to that, the interest is taxed at the federal and sometimes the state level in a taxable account. I've read that even a 20% equity allocation can keep up with inflation.

 

[DrgLrd]

You will never keep up with inflation

I'm not in the US, my expenses are low so I just need steady and safe.

 

[razztazz]

I'm not in the US, my expenses are low so I just need steady and safe.

If your expenses are well below the 4% of song and story you can go with all fixed income and not have to worry about inflation. Or at least not have to worry about it any more than a 60/40 stock/fixed, 4% person would.

 

[Sunset]

SCHD is an etf, it pays 3.61% and would be treated much nicer by the IRS for taxes than interest.
It would also over the years go up in value which hopfully keeps up with inflation.

 

[DrgLrd]

all fixed income

Which for me that means CDs, my question is about current strategies for locking in good rates. For example, one 10 year CD, one 5 year CD, one 1 year CD, and the remaining 250 in savings.



I was also looking at MYGAs and annuities but they lack the FDIC.



But when I look at 10 year CDs, the rates aren't much different than 1 year CDs. I feel like that makes them a bad investment, but I'm here for answers because I'm clueless.

 

[brucethebroker]

As an idea, research average 10Y Treasury yields (easier to track than various CD rates over time, IMO) over the last 35 or so years. Then remove the last dozen or so years of "free money" low yields. You might find that some of today's 10Y CD rates are in the "historical average" ballpark of the treasuries. Then look into building a long term CD ladder. Youtube has many good step by step videos. Good Luck.

 

[Alan]

Today I'm happy because I'm getting between 3.5% to 4% in various savings accounts, 1m cash.



I'm concerned about tomorrow, if rates get cut.



Are the only safe options long-term CDs?

I will move this from the "Hi I am" forum to "FIRE and Money" where you may get more relevant views on this question.

 

[DrgLrd]

As an idea, research average 10Y Treasury yields (easier to track than various CD rates over time, IMO) over the last 35 or so years. Then remove the last dozen or so years of "free money" low yields. You might find that some of today's 10Y CD rates are in the "historical average" ballpark of the treasuries. Then look into building a long term CD ladder. Youtube has many good step by step videos. Good Luck.

I can't buy Treasuries because I'm outside the US and their site has issues, I'll check out CD ladders though. You think now is a good time to buy?

 

[copyright1997reloaded]

I can't buy Treasuries because I'm outside the US and their site has issues, I'll check out CD ladders though. You think now is a good time to buy?

1. Buy them using a brokerage account, not via Treasury Direct.
2. Long Term treasuries or CD's - No, I don't think it is a good time to buy.

For the long term, you need investments that will keep pace with inflation. A fixed, non-inflation adjusted instrument based in the US dollar is unlikely to do that (remember, I am just some unknown stranger on the Internet).

I have 7-figures in the above (fixed rate, denominated in dollars), but I consider this money "parked" for the short term, not there forever...and I am keeping maturities short. (Mst under a year, very little over a couple/few years.)

 

[DrgLrd]

SCHD is an etf, it pays 3.61% and would be treated much nicer by the IRS for taxes than interest.
It would also over the years go up in value which hopfully keeps up with inflation.

I'm looking to avoid risk.



Is this a valid strategy; short term CD / savings, and then as soon as the rate cuts, long term CD, in the belief they'll continue to drop?

 

[pletal]

Today I'm happy because I'm getting between 3.5% to 4% in various savings accounts, 1m cash.

I'm concerned about tomorrow, if rates get cut.

Are the only safe options long-term CDs?

I am going long. 5 years and longer. If the rate works why not? If I can average 4 plus, it’s ok . Take a closer look at MYGA. I have put about 15% of fixed asset money into them. The state has some coverage for there’s products. Look for some CD,s that you can pull interest out easily.

 

[DrgLrd]

Buy them using a brokerage account, not via Treasury Direct.

Thanks. Does that include digital series I savings bonds with the 7%?

Long Term treasuries or CD's - No, I don't think it is a good time to buy. For the long term, you need investments that will keep pace with inflation. A fixed, non-inflation adjusted instrument based in the US dollar is unlikely to do that

I'm outside the US with relatively low expenses so inflation isn't a priority. I'm just looking for a guaranteed long-term income. Tbills, Tbonds, CDs. Last year with rates so low I was looking at annuities, but today that isn't an issue so I'm looking for better options.

 

[DrgLrd]

I am going long. 5 years and longer. If the rate works why not? If I can average 4 plus, it’s ok . Take a closer look at MYGA. I have put about 15% of fixed asset money into them. The state has some coverage for there’s products. Look for some CD,s that you can pull interest out easily.

Is it the issuing state that offers coverage, or the buyer's state for MYGA?

 

[brucethebroker]

I can't buy Treasuries because I'm outside the US and their site has issues, I'll check out CD ladders though. You think now is a good time to buy?

checking 10y Tres rates may give you a historical yardstick that can be used for longer term CD's even if you cannot buy treasuries.

 

[Montecfo]

It is a valid strategy to do CD's, though as others have said, may not provide a very generous longterm return.

Here inflation has ticked down sharply to 2-3% over past 9 months and it looks like more to come.

Generally, you probably want to build a ladder of CD's and not be speculating on interest rate direction.

Not investing longterm because rates are similar (or less) than short-term is missing the point. If we have a recession as many expect, all rates are likely to fall and we can expect Fed rate cuts so your short-term rates will be reduced also.

If we get another banking scare we may get some higher CD rates as we did a few weeks ago.

Hard to say.

All the best! And welcome!

 

[COcheesehead]

The goal of fixed income is to provide just that, income and a fixed return of capital. It is not for inflation protection. It’s like buying a car hoping it will fly.

 

[Sunset]

OP - is this all your money or you already have $1m in stock funds and are simply looking to have a another $1m in something secure ?

While some folks do only invest in interest bearing things, those folks tend to be very skilled and work hard at getting a good return. You don't sound very knowledgeable about interest things so I'd suggest a much more diversified investment of at least 50% stock and 50% interest things.

Are you required to do a US tax return ? (important regarding taxation effect on earnings).

 

[DrgLrd]

OP - is this all your money

Yes, 100% in FDIC savings. There's no pension and little SS in my future so investments must be safe.

Are you required to do a US tax return ? (important regarding taxation effect on earnings).

I am and I only get taxed on the interest income, I don't need to pay it though because I am outside the US.

 

[Fermion]

I am and I only get taxed on the interest income, I don't need to pay it though because I am outside the US.

100% positive about that?

 

[DrgLrd]

100% positive about that?

Yep: https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion

 

[MichaelB]

Yep: https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion

Sorry, the FEIE applies to earned income, such as a salary. Interest income is unearned and subject to full taxation regardless of where you live.

 

[DrgLrd]

Sorry, the FEIE applies to earned income, such as a salary. Interest income is unearned and subject to full taxation regardless of where you live.

I still don't pay tax on it, likely because the amount is below threshold.

 

[copyright1997reloaded]

The goal of fixed income is to provide just that, income and a fixed return of capital. It is not for inflation protection. It’s like buying a car hoping it will fly.

Inflation cannot be ignored. A given "income" flow becomes problematic in terms of purchasing power if inflation rages.

My goal of all investing is to keep the purchasing power of my accumulated wealth and that requires acknowledgment of various risks, including inflation and to pursue strategies to hedge these risks.

 

[DrgLrd]

My goal of all investing is to keep the purchasing power of my accumulated wealth and that requires acknowledgment of various risks, including inflation and to pursue strategies to hedge these risks.

My goal is to not lose money when investing, even if that means sacrificing purchasing power. Though as I stated being outside the US mostly mitigates that.