How Many People Here Are Giving Up On CD's

lou | Oct 29, 2011 | 714 posts since 2010

Now that it is almost impossible to find 3% CDs, I am wondering how many people are abandoning CDs and looking elsewhere to invest their money. I am considering it and wondering who else is contemplating this.

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bob52 | Oct 30, 2011 | 2 posts since 2010

Hi Lou: I haven't abandoned CD's, but during the August stock market dip allocated additional cash to dividend paying stocks. I focused on "dividend aristocrats" (ex: AFL, JNJ, PPG) whose yields currently equal or exceed the best current CD rates. My stock portfolio which also includes ABT & T currently yields 3.7%. Still keeping aprox. 90% of my "cash" in CDs & money markets though as I don't want to risk too much principal. Even with the conservative stock selections it can be a bouncy ride in today's volatile markets. EX: since I purchased AFL in August it has swung from being -20% to currently being +5% ... not for the faint of heart.

moneysaver | Oct 30, 2011 | 30 posts since 2011

I just had a large amount of long-term CDs mature, and I'm not putting any of those funds back into CDs. I'm retired, and so I live in part of the earnings of my holdings.

The only CD yields barely worth considering are very long term ones. And I'm not willing to lock up those funds for 7-10 years, considering the future uncertainties about interest rates, just to get a 2-3% guaranteed yield now.

Of my CD funds that matured, I'm putting a portion back into some RCA accounts that pay between 3 and 4% APY -- better than even the longest term CDs right now -- and the rest into some relatively safe dividend-paying stocks such as utility companies and pipeline master limited partnerships (MLPs), all of which -- while not FDIC insured -- are paying better than either the RCAs or any CDs. And have long, un-interrupted histories of rising dividend payouts.

At least if inflation and CD rates rise in the future, I'll have the RCA funds to redeploy if it makes economic sense...and I likewise could get out of the stock holdings too, presuming those holdings don't take a huge dive in value anytime soon. But even if they do for some brief period like the 2009 dive, they're still paying dividends each month/quarter throughout.

pearlbrown | Oct 30, 2011 | 2,299 posts since 2010

My decisions have been similar to those of bob52 and moneysaver.

I added to my high quality dividend payers in August and September when they were on sale and have been very happy with my decision. In early September, with Operation Twist looming on the horizon, and knowing I had a CD maturing the following month, I raided my lowest-paying RCAs for funds to extend my CD ladder with a 7 year CD for the first time. Thanks to Ken’s work, I was able to find a terrific rate.

Earlier this month I used funds from a maturing CD to reload the accounts I raided. If CD rates rise in the future beyond what RCAs are paying, the RCA funds will start flowing in that direction in staggered fashion.

me1004 | Oct 30, 2011 | 556 posts since 2010

I wish there were some kind of reasonable alternative. I already have had some money in mutual funds -- and don't want more there, whether good times or bad. I don't want my CD money in a non-government insured account, which means a bank (or credit union). That CD money is not for anyting any less protected.

So, I HATE the idea of LOCKING up money at these rates. But there is no real alternative.

This is just a matter of we responsible savers taking a HUGE hit to bail out the irresponsible people to took out loans far beyond anything they could ever possibly imagine actually paying off. Now we savers bail them out with ridiculously low rates so they can refinance for 30 years at preposterously low rates.

Wil | Oct 30, 2011 | 242 posts since 2010

Hi, Lou et al. I agree, CDs are not looking attractive at all right now, and probably won't be for some time to come. I just bought some shares of the Victory Fund for Income (IPFIX), which I got with no load or fees from my brokerage firm. Its yield is about 5.5% right now, with a portfolio of U.S. government bonds having an average duration of just under 3 years. It has never had a negative return for any calendar year in its 11 year history. I'm not thrilled about putting liquid, non-retirement assets into a bond fund, but short term CD rates are just too low. My Dad has a fixed rate "CD-type" annuity "maturing" in March 2012, but you can't purchase Victory Funds through his brokerage. So what I have in mind for him, for at least a portion of the money coming from the annuity, is the AllianceBernstein Income Fund (ACG), a closed-end fund also currently yielding about 5.5%, and which has a good record. I also have several CDs maturing in the first half of 2012: I plan to use the proceeds to pay the balance on my 15-year mortgage off in its entirety in June 2012 (meaning that I will have paid off the mortgage in 7.5 years). Aside from that, I'm just continuing to fund my installment savings accounts with a few Korean-American banks, where I'm getting rates of 5.75% to 7.00% APY (FDIC insured!).

pearlbrown | Oct 31, 2011 | 2,299 posts since 2010

@me1004 et al I agree with you - current CD rates are not very appealing at all. Even with a terrific one on my 7-year CD, it took handfuls of Tums over a couple of days to ease the heartburn produced at the thought of locking up money for such a long time. However, with the Fed talking about keeping rates low for some time and RCA rates continuing to drop, it seemed a prudent move. Also, it helped that the amount involved was modest, and that in the end, regardless of how rates changed, worst case was that I would have a rung on my CD ladder, which is not a bad position to be in.

These days we savers are like the ant in Aesop's fable, who worked hard, sacrificed and saved prodigiously to ensure his survival during the winter. However, unlike in the fable, we have no say in whether we support the grasshoppers who played and/or acted irresponsibly, but instead are effectively being forced to do so through meager interest rates.

lou | Oct 31, 2011 | 714 posts since 2010

Hi Pearlbrown,

Can you share the rate you got for the 7 year CD

pearlbrown | Oct 31, 2011 | 2,299 posts since 2010

At the time (early September), the best rate for which I qualified was 2.86%/2.9%APY on the 7-year CD at Navy Federal Credit Union. Other credit unions had higher rates, but despite best efforts I could not meet the membership criteria.

As a point of reference, seven weeks later, the APY for the same term is now 2.8% at Navy Federal. We surely live in interesting times when we can consider that a good deal, but lowered expectations seem to be the new "normal".