5 Year Treasury Vs CD?

daf999999 | Apr 1, 2024 | 13 posts since 2012

I'm looking to put a "jumbo" amount in a 5 year CD. I'm in Illionois (4.95% state tax). The calculator says the 4.332 rate on a 5 year Treasury is equivalent to a 4.75 CD. Looks like highest CD 5 year is 4.7 -- and getting the CD is more work since I need to open new account to maintain FDIC insurance. Also, I will not withdraw early so not worried about EWP/market pricing

So, my question is what is the downside of getting the 5 year treasury vs the 5 year CD?

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Answers

w00d00w | Apr 1, 2024 | 360 posts since 2012

So, my question is what is the downside of getting the 5 year treasury vs the 5 year CD?

One potential downside of the 5 year Treasury is that, for investors who want to compound interest until maturity, will need to do that manually when it's paid out every 6 months. The reinvestment rate on the Treasury will probably be different than the rate received at purchase. CD allows for automatic reinvestment at the same rate as when opened.

Another potential hassle is if the Treasury is purchased through the Treasury Direct site which is, in my opinion, cumbersome to navigate.

Ltssharon | Apr 2, 2024 | 471 posts since 2020

i don't like to use my brokerages because i have to take the interest earned every period and reinvest it to actually get the apy. my brokerages do not automatically compound, instead they put the interest in a money market if at fidelity, a cash account which earns almost no interest in schwab, and a money market at vanguard. people usually say i misunderstand this, by the way but when i call the brokerages the brokerage agents say i understand it correctly. I should just do the math one day as a mathematical proof one way or the other.

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