Bank Deal: Earn 1.00% APY on an FDIC-insured savings account at Barclays Bank.
Interest rates are very, very low right now. On top of that, the first “rung” on our CD ladder is coming up for renewal next week. We should be rolling that money into a new five year CD, but is that a good idea given current CD rates?
When we first started our CD ladder (Novemeber 2008), we bought a one, two, three, four, and five year CD. Rates topped at out 5.15% for the five year CD, and our overall average was 4.66%.
Fast forward to today… We’re now looking at 3.35% APY for a five year CD at the same bank — nearly 2% lower. On the surface, we should probably run away kicking an screaming, but when you dig deeper, the situation isn’t too bad.
If we roll that lowest rung into a new five year CD, the average rate will dip to a bit under 4.50%, which still isn’t too shabby. The big concern, of course, is that interest rates will spike and we’ll be locked in at a low rate. Then again, we can escape with “just” a six month interest rate penalty.
In other words, if we can hang on for a year or so, our effective interest rate would be roughly half the current rate (around 1.70%). If we make it for 18 months, we’d take home 2/3 (just under 2.25%), and so on.
When viewed in that context, the situation isn’t nearly so bleak. If rates jump, we can simply break the CD and re-deploy our cash. Sure, we’ll give up some interest earnings, but our money will still have performed on par with prevailing high yield savings rates, so we’re not risking much.
- How to Become a Millionaire
- How to Get Out of Debt
- The Best Dollars I've Ever Spent
- How Our Estate Plan is Structured
- How We Paid Our Mortgage In Less than 10 Years
- Money Making Ideas
- How to Manage Your Asset Allocation with Multiple Accounts
- Consumption Smoothing - Save While the Saving's Good
- How to Save on Groceries
- How Much Life Insurance Do You Need?
- Eleven Great Books About Money
- Dave Ramsey is Bad at Math (692)
- Dish Network Customer Service SUCKS (534)
- $8,000 Homebuyer Tax Credit (429)
- Pay Off Mortgage Early or Invest? (424)
- How to Claim the First-Time Homebuyer Tax Credit (352)
- Termite Control: Sentricon vs. Termidor (325)
- How Much Should You Pay a Babysitter? (284)
- Ethanol Blended Gas = Lower Mileage? (272)
- Reduced Credit Limits? Share Your Experience (256)
- $15,000 Homebuyer Tax Credit (242)
- Buying Furniture off the Back of a Truck (227)
- Will Mac OS X Lion Kill Quicken 2007? (191)