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)

10-Day Give

I wanted to feature this in the newsletter, but I honestly don’t know when I’m going to be able to get that done. However, I still want to get the information out there.

In these scary times, sometimes it is helpful to take our eyes off ourselves, and look towards helping others. That is the premise of the 10-Day Give. It was started at a blog that I frequent.

Give it some thought and consider joining. We probably can’t directly affect the current crisis, but we can do small things that can have a ripple effect.

Go to it.

10-Day Give

cd :O)

Surprise Fed Cut of 0.50%

In an orchestrated move with other Central Banks, the FOMC lowered Fed Funds from 2.00% to 1.50%.

This will bring short-term rates down, but the longer-term may not be affected much. As a result, we will have the steepest yield curve we’ve had in some time.

I just don’t get it though. The Fed Funds rate isn’t the problem. The frozen credit market is the problem, and I don’t see how this is going to help that. Matter of fact, shortly after the Fed Cut the LIBOR rate went up a little. Many short-term lending instruments index to LIBOR in some fashion.

We are updating our rates as fast as we can. Hang in there.

cd :O)

New FDIC Insurance Limits

With a stroke of a pen, President Bush signed the Bail-out plan on Friday evening (10/3/08). A provision that was included was temporarily increasing the FDIC Insurance limit to $250,000. The increased limit is only in effect until 12/31/09. Congress would have to pass more legislation to make it permanent. The NCUA will follow suit so that federally insured credit unions will have the same coverage as the FDIC.

What this means for you: Any liquid accounts such as a checking, savings, or money market account at an FDIC insured bank or NCUA insured credit union are covered up to $250,000 until 12/31/09. Any CDs you have are also covered. You need to be careful with CDs though. If you invest in a new CD and it matures before or on 12/31/09, you will be covered up to $250,000 (assuming you have no other deposits). If it matures after 12/31/09, whatever amount is above $100,000 has the potential to be uninsured.

Personally I wouldn’t gamble that Congress will make the change permanent. I would only do CDs at the new maximum that mature before 12/31/09.

I will make a follow-up post regarding joint accounts and revocable trust accounts. It isn’t clear if the new limits apply to those or not. cd :O)

Congratulations America

Congratulations America. You are now on the hook for $700BB. Let’s hope and pray that this works. Failure can not be an option.

I would honestly like to hear from small business owners. I’ve heard stories from both sides. Those that run on a cash-only basis that were against this and those that were facing missing payrolls because they couldn’t get a short-term loan (at a reasonable rate).

Part of the bill included the provision to temporarily raise the FDIC insurance limit to $250,000 per single account. Unless made permanet this expires in 12/09. The Bill has been signed by the President. So now we are waiting for confirmation from the FDIC

cd :O)

Bribe or Bail-out

The Senate passed the bail-out bill. But, they added 18-pages of unrelated extensions and tax exemptions. Sounds like some of these items were added to “bribe” some of the members of the house that originally voted no.

I say call your representative and tell them to take out the “junk”. If the bill is to be passed, it should only be about the bail-out, and not have any added ear marks or pork barrelling.

Here are a few that Dwight of Wescorp featured.

How about $2 million in tax breaks for childrens wooden practice arrows (as in Robin Hood), $192 million in rum tax exemption for Puerto Rico (just heard one Senator say this was a truly vital extension), $100 million for motorsport racetrack improvements, and something about wool that will cost $148 million

Come on. Give me a break! As I’ve already said, I’m not a fan of this bail-out anyway. I do recognize that they believe it will open up the credit markets and allow for fund to flow normally from bank-to-bank and from bank-to-consumer/business. There is no guarantee of this though.

To me it seems like a $700BB gamble. I would love to have your thoughts. Leave us a comment.