Jumbo CD Investments - CD Rates Blog

What Really Happened on Thanksgiving

Caroline Baum publishes an annual column on what really happened with the Pilgrims and Thanksgiving. I invite you to check it out.

Thanksgiving Story Resonates in Year of Crisis

Happy Thanksgiving!!! May you and yours be blessed.

cd :O)

Rates Have Been Coming Down

CD Rates on terms of 2-years or less have been trending down. For about a week after the last rate cut, there wasn’t much movement. However, as it looks like the Fed Funds will remain low for sometime and some have predicted it may even go to 0.5%, the CD Rates have been going down.

A couple of weeks ago we had a 1-year CD rate at 4.40% APY. Today the highest is 4.25%. On the 2-year, we had a 4.50% APY and today it is down to 4.45%. The 3-year and longer rates seem to be holding. The 3-year rate of 5.00% APY remains good as does the 5.25% at 5-years.

As we get closer to the next Fed Meeting, look for rates to come down further. The next meeting is December 16. As it is, the yield curve between the CD Rates and Fed Funds is quite steep.

cd :O)

Who Can Make the Better Decision

Apparently Fortune Magazine did an article on HENRYs. I have never even heard this term. It means High Earners, Not Righ Yet. One of my favorite bloggers has a good discussion going on. Head on over, check it out, and leave your point of view.

The dicussion centers around who should be making the decision about spreading your wealth. You or the Gov’t. Naturally, I believe I should.

HENRYs, are they getting it all wrong

cd :O)

Difference Between IRA CD and CD

The biggest difference between an IRA CD and non-IRA CD is the tax consequences. IRAs (Individual Retirement Accounts) can contain a variety of investments, such as mutual funds, bonds, realestate, and of course CDs.

Without going into lots of detail about IRAs themselves, they basically are an investment account that grows tax free. You aren’t taxed until you take funds out. Traditional IRAs are made from pre-tax contributions and you can’t access those funds until you are 59 1/2 or older without paying penalties. There are some exceptions, but I don’t want to spend too much time on that. Roth IRA contributions are made after-tax. The account grows tax free, but you can also being to withdraw fund prior to 59 1/2 without penalty. If you wait until after 59 1/2 you aren’t taxed.

So back to the difference when it comes to CDs. An IRA CD won’t have any tax consequences until you begin to make withdrawals. With a non-IRA CD, you pay regular income taxes on the interest that is earned, regardless of whether you receive it.

For example, let’s say you open a $100,000 IRA CD for 3-years and a non-IRA CD at 5.00% APY. Over 3-years both CDs will grow to about $115,762.00. However, you will only have to pay taxes on the non-IRA CD. If you are over 59 1/2, at the end of 3-years you can take $5000 out and only owe taxes on that amount. The remaining funds can be left in the CD for another term. With the non-IRA CD you pay taxes on the full $15,762.00 (and generally you pay taxes when the interest is earned, so you would pay taxes on about $5250 per year).

An important note, IRAs have yearly contribution limits. You can’t just one day decide to create a $100,000 IRA CD. Those funds would have to have been accumulating over the years. SEP and SIMPLE IRAs (used by self-employeed and small business owners) have a fairly high yearly contribution limit. Traditional and Roth IRAs were $5000 for 2008.

View IRA CD Rates

cd :O)

Fed Cuts Rate by 50 Basis Points

The FOMC cut the Fed Funds rate today by 0.50% (50 Basis Points). That puts Fed Funds at 1.00%. This follows an earlier cut of the same in the beginning of October.

It will be interesting to see how this affects CD rates. The last cut mainly had an effect on the 90-Day and less CD Terms. 1-year and longer CD Rates remained the same. We expect a similar reaction.

The fact is many banks need the liquidity and competition will continue to keep the rates fairly high compared to Fed Funds. 1-year and longer rates may drop about .25%.

cd :O)