Thursday, April 23, 2009

Sad CD Rates, But Better Than Nothing

My parents have a small nest egg that has been percolating in a nice Washington Mutual CD for the last year. It was bought up by Chase Bank but it kept it's 4% interest rate. Now it is ready to roll over and CD rates are dismal. Using bankrate's CD finder I found that GMAC bank has the best rate right now. That's not surprising. GM is on the verge of bankruptcy so they want as much cash as they can get. Don't worry though, it is FDIC insured and if they do go bankrupt someone will buy the bank, I'm sure, at least they'll buy the assets. Just like Chase did with WaMu. Here's the list of rates as of 4/22/09. OCCU is my credit union. I thought I would include them for comparison. They used to be competitive. In fact I have a CD with them that comes out in September. I'll definitely be moving it somewhere else.

GMAC: 3m-1.75%, 6m-2.25%, 9m-2.3%, 12m-2.75%, 2y-2.9%, 3y-3.2%
Discover: 3m-1.25%, 6m-1.75%, 9m-1.9%, 12m-2.35%, 2y-2.72%, 3y-3.06%
Chase: 9m-1.5%, 12m-1.75%
OCCU: 6m-1.2%, 12m-1.5%

I suggested that my mom split her money in to 3 or 4 CDs for different lengths, that way she will have money available for bills or other projects and if she finds a higher CD rate some time in the (hopefully near) future her money won't be tied up for a long time.

I have $2,000 of my emergency fund that needs a safe place to grow. It has been padding my checking account but next month I should have enough padding so it will be safe to put that money in a 3 month CD.

Remember when CD rates were at 5%? It seems like so long ago. I am very glad I decided to pay down my mortgage instead of saving the money in short term investments. It is much more motivating and fun to see my mortgage disappear.


Over the Cubicle Wall said...

One of mine just matured, and I have it parked the money in my ING account at a lousy 1.5%. I need to do something with it, but I still have no idea what.

Daizy said...

1.5% isn't bad, compared to .35% which is what my savings account is getting. Now compared to's bad.

Andy Hough said...

It may not be worth the bother for you but I have my cash in a reward checking account right now. It pays 5.01%. The drawback is that I have to make 10 card transactions a month, have an auto bill pay or direct deposit, and have to receive my statement online. If I don't I only get 1% for the month. The extra 3% interest seems worth the trouble for me. Of course since this is a checking account they could drop the interest rate at any time.

Lizzie @ her homeworld said...

Hi Daizy
What's a CD? Just a savings account or something special? I think you are right to just keep an emergency amount and get the rest paid of your mortgage. Its really not worth saving right now.
See you

Daizy said...

Thanks for the tip Andy. I searched for some of those checking accounts and read the requirements. If I had more money in my savings it would be worth it to jump through the hoops for 5% as long as they didn't lower the rate too quickly.

Lizzie, CDs are certificates of deposit also called term certificates. They get a fixed interest rate for however many months you choose. They are very safe, low interest investment. When I was deciding whether to pay down the mortgage or save the money instead, CDs were getting 5%. Maybe it would have been ok if I had locked in that rate for 5 years but I don't think I would have done that.

The Executioner said...

The strategy you recommended to your mother is called laddering, and is commonly used to hedge against changing interest rates. Nice work.