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JLeslie's avatar

Do you think I should get a 5 year CD at 3%?

Asked by JLeslie (60729points) August 25th, 2010

I am very conservative with my money. I worry that if we ever hit high inflation the 3% will be nothing, but savings rates are so low right now.

My rationale is it might be better to get 3% starting tomorrow, than get .9% for the next year, even if the rates go up beyond 3%in the future. I figure it will balance out, and if the rates stay really low I am ahead.

I am not looking for someone to tell me about how I will not be keeping up with inflation, that is a different topic to me. I am only talking about what to do right now with money I don’t want to risk; I want the principle secure.

Are any of you buying CD’s?

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8 Answers

Hypocrisy_Central's avatar

Fact from fiction, truth fro diction. I would dump the CD route. If you were looking to tie up cash for the next 5 years I would go with real estate, in the form of lien sales. Depending on where you got it you would only have wait as little as 6 months to see a return on investment. Even states with crappy interest it is better than 3% somewhere near 8% and some of the better states you can get as high as 26% interest. The worse that can happen if you chose the market well is you will end up with a piece of property you can fire sale even in this slow market and still make a profit because you would have paid around 6 to 12 cents on the dollar to get it.

BarnacleBill's avatar

Hmmm. You get hammered by inflation just by showing up for work and drawing a paycheck. Is this money that’s your emergency fund, and it needs to stay liquid, or is this long term savings money? If it’s emergency fund money, and needs to stay liquid, then go the CD route. Split the amount up into separate CDs so that if you do have to cash them in early, you’re good.

If you are interested in acquiring real estate, as @Hypocrisy_Central said, there are some bargains to be had in this market if you do your homework and understand what you’re getting into. When you acquire real estate you also acquire all outstanding liens against that property. In some markets, the lien sales are dominated by a core group of investors, and it’s not always easy to get deals, or unload property.

Cruiser's avatar

I have a cash/bond money market fund in my 401K that has been averaging 3.6% throughout this doom and gloom run in the stock market and actually the same for it’s entire existance so it is a solid performer for a safety net. It is where I rode out that nasty drop in the market and where I have 50% of my 401K now and thinking of moving a lot more there the way things are looking today.

actuallery's avatar

I buy 100 CD’s for about $20, it’s the DVD blanks that cost more, especially those RW DVD blanks.

john65pennington's avatar

I read your figures and just laughed. not at you, but at the percentage rate being paid for a CD. back in 1984, wife and i had two CD’s that paid 16.5% interest. you can see now why i laughed. i guess 3% is better than 2%. are you willing to commit your money for five years at 3%? to me, that’s a big gamble. i would look elsewhere, like real estate or gold.

JLeslie's avatar

Let me clear some stuff up. This is savings that can be tied up. My husband and I already put the maximum into 401k’s and IRA’s, we will still have plenty of saving if he lost his job, or something bad happeed God forbid. I also have some money in the market, contrafund, and a couple of others, but my money that has done the best over the last 20 years (I am 42) has been the money I have put in CD’s. Even if I had taken my money out before the big crash a couple of years ago, the money I had invested back in the late 90’s would have been better in a CD, because of the dip that had happened with the .com bust. I have made quite a bit on real estate, but when I seel my current home, which I am trying to do, I will lose a lot, at least a third of what I had gained over the years.

3 years ago I bought a couple of CD at 4% and didn’t want to get one for more than 18 months, because I felt like what if inflation kicks in and it is like the late 70’s early 80’s again, and I am locked in at that low rate. LOL. Now I wish I had locked in for 5 years.

@john65pennington I know, believe me I remember being very young and getting 12% on my CD’s, but mortgages were very high also. I would love it to be more reasonable, like 6 or 7% mortgages and 5% interest on saving, something like that. I don’t even have a mortgage, but I don’t want to see inflation out of control.

@Cruiser That’s interesting, do you mind sharing which fund?

@Hypocrisy_Central Yeah, I have thought about buying some real estate again (I am actually a licensed Real Estate agent in FL) but this money is separate from that. I have never really looked into lien sales, I might consider it.

GeorgeGee's avatar

3% is a good rate on a CD right now. People tried to talk me out of CD’s a couple years ago, extolling the virtues of stocks, bonds and real estate… but they’ve all gotten their butts kicked since then. I have a conservatively balanced portfolio with about 50% in CD’s right now, and they’ve done better over the past 5 years than any of the other investments. 3% isn’t pretty but it’s dependable.

IchtheosaurusRex's avatar

Check with your local electric utility and see if they have a direct purchase program. Utility stocks are about as safe as they come, and they pay dividends that can be automatically reinvested. The share price fluctuates with the markets, but the dividend is generally stable, so it tends to even out over time; when the price is depressed, the dividend buys more shares. If you are planning on holding this for 5 years, I think you’ll get a much better rate of return out of it. And unlike a CD, you aren’t locked in.

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