Closing Out CD Early

[Anonymous]

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@Anonymous wrote:

I ran the numbers. I would make a few bucks extra by closing out a Cap1 CD early and moving it to a higher rate, despite the interest penalty.

Upsides? More interest, less recordkeeping (Planning the open the higher rate CD with a given amount, just adding the Cap1 CD amount or not.).

Are there any downsides other than the penalty itself of which I should be aware? I don't want to get blacklisted or anything with Cap1. Thanks!

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After reading this thread the first thought I had, is there really enough money involved to make it worth the paperwork hassle? In the event the CDs are coming up for their renewal period in the next six to twelve months and small amounts of money, why bother. ABCD2199 pretty much said it all!

[SBR249]

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@Anonymous wrote:

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@SBR249 wrote:

Lately, I've been finding that Series I savings bonds tend to be a better deal than CDs for about the same restrictions. Current rates are around 2.58%. Minimum hold time is 1 year and redemptions within 5 years incur a 3 month interest penalty which is much less than penalties for many CDs. The rate is also adjusted every quarter so it does keep up with the Fed's rate adjustments. 

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Since the 11/1/17 set inflation rate, yes, but there's a good chance this won't keep up while CD's are likely to become increasingly competetive.

That said, I'll probably still buy some. I'm expecting a small refund this year, so I'm currently debating whether I want paper or electronic.

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And if it doesn't keep up with CD rates, then the penalty to redeem before 5 years is generally lower than early withdrawal penalties on CDs of a similar term and current Series I rates beat CDs of a similar term. Therefore, given the current best CD rates that you can get, putting money into Series I bonds is a no-brainer unless you anticipate CD rates to skyrocket in the next 12 months or the inflation rate to tank. In which case, buy CDs. 

[Subexistence]

Quite curious about why you guys have CDs. I have a checkings account for paying back my cc. I have a money market account and my parents as my emergency savings. Everything else goes to my VFIAX index fund.

[Anonymous]

I don’t borrow from family ever.

CDs as a ladder work great to provide liquid capital over a period of injury or joblessness.

I like my assets across a broad spectrum of markets and vehicles. A CD ladder is just one vehicle but it pays better than HYS usually.

[Subexistence]

Do you have CD ladder with HYS or just CD latter?

[Anonymous]

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@Subexistence wrote:
Do you have CD ladder with HYS or just CD latter?

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I have my portfolio pretty well laid out and I adjust it either once a year or quarterly depending on growth and imbalance.

2018 is my year to get my CD ladder working -- not just for payouts but so that I will have a consistent "paycheck" coming in in the event that all my income stops and I get injured or sick.  It's not the best route for returns, but it's a great way to make sure there's always a paycheck coming in.  My original plan was 60 months of monthly CD maturation, but I decided against that because some of my illiquid assets can be sold off in less than a year, so my new plan is 24 different 1 month CDs maturing 1 month apart.  That's semi-liquid money I can bank on every month if I don't roll it into a new CD at maturation.

Note that I'm 43 and have been retired since 41, but I have a strong income coming for some more years due to deferred compensation and rental income and gig economy incomes.  So even though I don't "work" per se, I do have incomes that I am working every day to maximize so they last me the rest of my life (and then some).  If you're younger or still working, there REALLY isn't an excuse to plan this stuff and put it into motion.

In addition, I also have US dollars in an HYS account.  Today I opened the Insight card (5% APY up to $5000) and will fully fund it with $4750 or so and push $1 every two months to keep it active with no fees.  My HYS account has 6 months of "poverty expenses" in there for easy access.  I also have a Euro savings account in a Euro bank with 3 months of poverty.

The HYS is for "holy moly I'm in trouble" money right now.  The CDs are for long term problems and if I need to liquidate illiquid assets, I can.

Note: I am NOT rich/wealthy, per se.  I also know a lot of kids in my FIRE clubs locally who are in their mid-20s and most of them have at last 1 year of income saved in a variety of methods and they consistently max out their options for IRA.  None of them came from wealth, either, they just earned as much as they could and then saved as much as they could.  I wish I did that in my mid-20s, but there were no wealth building forums out there of value.

Today, for 99% of Americans, there is zero excuse to be broke without emergency savings.  None.  I see how my poor family members and friends spend their incomes and I'm a tiny bit thankful they're the ones paying the fees so I can earn the rewards.  Still sucks to see.

So the goal I tell others to do:

1. 1 month full income in HYS
2. 3 months full income in HYS
3. 6 months poverty expenses in HYS
4. CD ladder quarterly, poverty expenses
5. CD ladder monthly, poverty expenses
6. CD ladder quarterly, full income
7. CD ladder monthly, full income

If you can't get to step 1, you either are spending too much or not maximizing your free hours to generate an income!

[Subexistence]

What is FIRE?

[arkane]

Financial Independence Retire Early