Are CDs a Good Idea Now?

Ken Tumin
  |     |   6,078 posts since 2009

While working on this AmTrust CD post, I was reviewing the comments of my 2008 AmTrust Direct CD posts, and I came across this June 2008 comment in which the reader gave his opinion about the 4.00% 12-month+ CDs:

In my opinion this is not the time to get in long term cd's. With M/M and savings accounts paying 3.50 to 3.75% I see no reason to get in 4% cd's unless you think rates are going down which I don't.
I just wanted to point out how difficult it is to predict future interest rates. That's one reason to use CD ladders so you don't have to try to guess about future interest rates.

  |     |   2,893 posts since 2010
The present time is always right to go out long term if you ladder CD's. The sooner you start the better for long term investing. Compounded is where the money is made in the out years.

We gave done this for 30 years. During each 5-7 year interest cycle the highest interest rates have gotten lower. To maximize your return, ladder and go for the highest rate no matter how long and where it is as long as you are 100% insured. 


Because we have invested in IRA's since the late 70's, have invested 20% of our income in 401K's for the years that they were offered (8 years for my husband and just under 10 years for me) and tried to save a miniumum of 10% each year since 1985 of take home pay except when the children were in college, we have enough for retirment.  We have been 100% in CD's for the last 10 years and probably 80% in CD's before that.

A big portion of our investments were  in fixed income and we prefered to have  all of the part of our retirement that will be taxed to be in CD's. There is no better solution to get better rates than to go out the longest time possible or what ever it takes to get the highest interest at that time. Laddering is the best solution to maximize your interest income. If there are specials that have higher rates for shorter terms than take that. You will find that purchasing CD's with shorter times and lower interest rates while waiting for rates to go up rarely works out to your advantage. You lose so much money  while waiting for the rates to go up and it takes so much time to make that up that you end up losing money in the end.

I worked in banking for 30 years and at the same time spent 23 years as a rural township treasurer and I never did what "those in the know" said to do EXAMPLE don't take  your money out of the market even when CD's were paying 10% and over, wait for rates to go up, don't go out long term etc. These were people in banking, brokerage houses etc.  They get their information from the company's "advisors" that want your money, and to make a big profit they need to pay lower interest and to make more trades. It is all about getting your money and taking away customers from their competitors.

If you have some long term savings outside of your retirement that you would pay taxes on and prefer to "play" in the market do it. At this time you pay less taxes on capitol gains and can write off a certain amount of your losses when those investment are OUTSIDE of your retirement accounts.

I use the term "play" in the market because you no longer can determine from balance sheets whether the company is in good shape. I feel until the structure and laws for for Wall Street and business is changed we should not play in the market unless you think you understand what is going on. Remember what we read in the papers, on the internet or hear on the news, or from our broker is already OLD NEWS. The money that has been made on that "tip or the current conventional wisdom" already has been made in most cases. Money on Wall Street is invested for hours, minutes and sometimes seconds to maximize their earnings. The trading is done for in house trades first or their "special customers" before they take care of their "other" customers. This has to change.

Long term compounding of interest that is reinvested with the CD in the long term pays nearly as much as being in the market with no ups and downs and with no anxiety. This is what my husband and I have done and we are comfortable with both our choice and the amount of money we have to live on. 



Ken Tumin
  |     |   6,078 posts since 2009
Thanks rosie43 for sharing your experience!

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