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Stupid Question about CDs
12-30-2017, 08:26 AM
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#1
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Thinks s/he gets paid by the post
Join Date: Oct 2002
Location: Chattanooga
Posts: 3,877
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Stupid Question about CDs
I feel that I should know the answer but will confess to my ignorance. I recently bought a couple of CDs in my FIDO IRA. I noticed recently that the value of the CD has fallen by a few dollars. Anybody know, what gives here and what I might be missing ? Thanks in advance.
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Earning money is an action, saving money is a behavior, growing money takes a well diversified portfolio and the discipline to ignore market swings.
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12-30-2017, 08:33 AM
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#2
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Thinks s/he gets paid by the post
Join Date: Jan 2006
Posts: 4,172
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just a guess since it's been so long since I bought a broker CD..........guessing that they're trying to give you a market based value which moves depending on interest rates If you redeemed (sold) early you'd have to accept a market rate , not your face value. My broker held muni bonds are the same way.....they have a nominal face value but the market value is shown in the current valuation column.
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12-30-2017, 08:34 AM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2013
Location: Texas
Posts: 10,863
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Fido, sounds like a real dog to me.
I've never seen a CD lose mosey unless it's due to an early withdrawal. Some might say they all lose money if you count inflation, but that's a different issue.
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12-30-2017, 08:55 AM
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#4
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Thinks s/he gets paid by the post
Join Date: Feb 2014
Location: Syracuse
Posts: 3,501
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Agree with Kaneohe.
My brokered CDs show a loss on Fido site when rates go up. Holding to maturity so I don't care.
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“No, not rich. I am a poor man with money, which is not the same thing"
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12-30-2017, 08:59 AM
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#5
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,007
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Brokered CDs are marked to market. If you tried to sell it you would get the lower value.
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Retired since summer 1999.
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12-30-2017, 09:01 AM
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#6
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Thinks s/he gets paid by the post
Join Date: Oct 2002
Location: Chattanooga
Posts: 3,877
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OK, thanks everyone and that makes sense and I too hold them to maturity. Woof, woof car guy, LOL.
__________________
Earning money is an action, saving money is a behavior, growing money takes a well diversified portfolio and the discipline to ignore market swings.
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12-30-2017, 03:59 PM
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#7
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Full time employment: Posting here.
Join Date: Dec 2006
Posts: 880
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Broker CDs behave the same as bonds. Interest rates go up, value of Cd goes down.
Hold broker CD to maturity, get your principle back. (If you redeem broker CD early, you may get more/less then your original principle).
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12-30-2017, 05:36 PM
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#8
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Thinks s/he gets paid by the post
Join Date: Mar 2013
Location: Southern California
Posts: 3,995
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I've always argued that brokered CDs should pay a higher interest rate than bank CDs because of the inherit interest rate risk, but they don't. That's why I've never bought them.
To do a fair comparison, look at the best rate you can get from a bank, and look at the early termination penalty associated with cashing it out early. The penalty is essentially the interest rate risk for not holding it until maturity.
The reason I prefer this strategy is that it's generally easy to find banks that only charge a six month penalty on a five year CD. So if rates go up in two years, I cash out, pay them six month's interest, and reinvest at the higher rates.
You can't do that with brokered CDs. Hence they should pay higher rates. But they don't.
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