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when to use CDs

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  • when to use CDs

    At what point in one's investing career does someone utilize CDs and CD ladders. Would it be later and towards retirement? Or would one make a small percentage (3-5%) of their portfolio earlier in their career to lower overall risk?

    I doubt I'd use them currently, as HYSA more suits my current needs. I can't find a decent answer on the internet (at least not one catered to higher earners).

    Thoughts?

  • #2
    With online savings accounts, I've looked and the answer seems to be never? Several online savings accounts have higher APRs than their own banks CDs. Maybe I'm looking in the wrong places, I'd be interested if anyone knows...

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    • #3
      Personally never.
      Maybe if I absolutely had a known fixed cost <2-3 years away that was mission critical.

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      • #4
        I think they are kid of worthless unless you keep around a lot of cash with specific needs in mind.

        I have a 5K CD at my primary back because if I keep a 20K minimum balance across all accounts I get the silly benefits that they offer.  Fee checks, no atm fees, better rates, invited to the picnic, etc.   And I do not want to keep all 20K in the checking account making .01% interest.

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        • #5
          I would be reluctant to use an 'investment in CD's'.  The use case for a CD/CD ladder would be saving for a specific goal at a specific point in the future with decent though irregular CD purchases.  Between technology improvements and competition, use of CD/CD ladder is almost archaic unless you are making a side bet on rates falling faster than the bank anticipated when marketing the CD rate.  Most folks would be better off creating a ladder via treasury direct.

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          • #6
            I never had a CD until this year.  I had excess cash that wasn't FDIC insured so i put it in a CD locked at 2.75%.

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            • #7
              The yield curve greatly increases financial institutions appetite for funds. The spreads just aren’t there.
              Risk free return doesn’t offset now. It has, not today.
              How does 12% sound? Great if inflation stays at 2-3%.
              https://www.thebalance.com/can-cd-rates-go-back-to-historical-highs-and-lows-4179031

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              • #8




                At what point in one’s investing career does someone utilize CDs and CD ladders. Would it be later and towards retirement? Or would one make a small percentage (3-5%) of their portfolio earlier in their career to lower overall risk?

                I doubt I’d use them currently, as HYSA more suits my current needs. I can’t find a decent answer on the internet (at least not one catered to higher earners).

                Thoughts?
                Click to expand...


                They're basically a bond equivalent that doesn't gain/lose principal with interest rate swings.
                Helping those who wear the white coat get a fair shake on Wall Street since 2011

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                • #9







                  At what point in one’s investing career does someone utilize CDs and CD ladders. Would it be later and towards retirement? Or would one make a small percentage (3-5%) of their portfolio earlier in their career to lower overall risk?

                  I doubt I’d use them currently, as HYSA more suits my current needs. I can’t find a decent answer on the internet (at least not one catered to higher earners).

                  Thoughts?
                  Click to expand…


                  They’re basically a bond equivalent that doesn’t gain/lose principal with interest rate swings.
                  Click to expand...


                  So if one was projecting negative interest rates in the US, then it could be reasonable to have a CD ladder with the highest dollar amount in the longest term (5 years) at the current rates, with smaller sums that mature sooner to potentially utilize that capital elsewhere if the interest rates stay stable or increase. I'm not smart enough to make that prediction, yet.

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                  • #10










                    At what point in one’s investing career does someone utilize CDs and CD ladders. Would it be later and towards retirement? Or would one make a small percentage (3-5%) of their portfolio earlier in their career to lower overall risk?

                    I doubt I’d use them currently, as HYSA more suits my current needs. I can’t find a decent answer on the internet (at least not one catered to higher earners).

                    Thoughts?
                    Click to expand…


                    They’re basically a bond equivalent that doesn’t gain/lose principal with interest rate swings.
                    Click to expand…


                    So if one was projecting negative interest rates in the US, then it could be reasonable to have a CD ladder with the highest dollar amount in the longest term (5 years) at the current rates, with smaller sums that mature sooner to potentially utilize that capital elsewhere if the interest rates stay stable or increase. I’m not smart enough to make that prediction, yet.
                    Click to expand...


                    If you thought that, why wouldnt you buy bonds with a similar interest rate and also reap the gains in price? Although you have some interest rate risk you at least get your money back at whatever effective duration you've chosen.

                    The bond market is currently calling for a number of rate cuts, which may or may not come to pass. We shall see, but there is some disagreement in bonds/equities right now. I have had a good portion of bonds myself, for a while now, but they are indeed rich.

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                    • #11
                      how risky are CD's?  They give more interest then individual t bills

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                      • #12




                        how risky are CD’s?  They give more interest then individual t bills
                        Click to expand...


                        you have to calculate the equivalent yield as T bill interest is exempt from state tax, at least in most states I believe

                        they would be extremely low risk, but the main downside is loss of liquidity

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                        • #13







                          how risky are CD’s?  They give more interest then individual t bills
                          Click to expand…


                          you have to calculate the equivalent yield as T bill interest is exempt from state tax, at least in most states I believe

                          they would be extremely low risk, but the main downside is loss of liquidity
                          Click to expand...


                          so if you live in a tax free state like texas it would never make sense to buy an individual t-bill as long as the CD rate was higher (currently <2% vs 2.6%)

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                          • #14
                            Like I said with a CD you may lose liquidity. T bill can be sold easily as long as you don’t buy direct from treasury.

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                            • #15
                              I just buy the bond fund at this point, try to pick up some duration to get price convenxity, etc...on your side. You still much of the same benefits as individual bonds though they are turned over more and it isnt a stable group of holdings.

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