CDs, Treasury Bonds, what else? @ content

[Mushe]

Hi MM! Long time no GBCN. It’s been a weird past year for us - with an unplanned expensive international trip and buying a new car for me, I think I buried my head in the sand a bit.

My H is receiving an inheritance from an uncle very soon, and I’m interested in any advice you have for us. As background, I’m an attorney and keep telling him it’s his separate property, but he wants to commingle. I don’t have any concern that we’ll separate, but just sharing that for context.

We put ourselves in catch-up mode on retirement years ago, as we both have professional degrees and felt like we got a slower start to serious saving, but we’re in a good position there and holding tight. College savings are in a pretty good place too, although we have talked about adding a lump sum from the inheritance to each account; we have two kids. House was refi’d into a 2% rate and will be paid off right before kid 2 goes to college; paying ahead isn’t on our radar.

Lots of background info to say that we don’t want to spend the money now and are looking at a place to park a good percentage of this money for the next few years, wanting to take advantage of the high interest rates. We’ve never invested in CDs or bonds before, but they’re attractive with rates around 5% for 3 year CDs.

What say MM? We know not to buy a callable CD, but otherwise know nothing. Any benefit to Treasury bonds vs. CDs? Should we do a ladder with different lengths of time?

[Mushe]

I know this isn’t the board where it’s mandatory to mark @ but I haven’t been around lately and wanted to make sure I’m not committing a faux pas.

[sadlebred]

How long is "long?" Do you want to simply preserve the money or grow it? I think those things need to be decided first. I-Bonds pay the rate of inflation, but CDs right now are paying a bit more (5% vs. 4.3%-to reset in Oct.). A quick Google search tells me Treasury Bonds are paying 4.1-4.3%.

If you do decide to buy cds, check into FDIC maximum insured per person per financial institution. Generally it's $250,000 per depositor per bank. There may be a slight difference for married couples; I'm not sure on that. It doesn't matter if you have one $250,000 cd or 10 $25,000 cds, the max still would apply. The better thing to do if you are talking more than $250,000 would be to split it up among 2-3 different FIs. At that amount, I'd do both treasury bonds and some CDs.

If you think you will need some of the money in a year or two, a CD ladder is a good place to put it. You could do 1, 2, 3, and 5 year cds depending on the rates. CDs can carry an early withdraw penalty, often 3 months of interest.

[Mushe]

Thanks, sadlebred! I think we want to park it for the next 3-5 years and have it do more for us than sit in a traditional savings account. I guess we should be comparing money market to a CD; what we like about the CD is the guaranteed rate of return. I was clocking the FDIC part, so I’m glad to hear that’s something we need to be looking at!

I don’t know the difference between I-bonds and treasury bonds, so I’ll go look at that now.

[sadlebred]

One thing to know about MMs is that it's not a guaranteed 1:1 ratio and could lose value (not likely with interest rates this high). It might be worth reading up on. I would stay away from "Money market mutual funds" if you want to guarantee the money. Rates are not going down anytime soon, but the Fed will likely either not raise them again or only at .25% at their next meeting according to the financial talking heads. So, it might be worth keeping in a savings account for a few months to see if CD rates will go up and then lock something in for 5 years.

I like I-Bonds and have a bit in them (a very little bit. I make a low salary compared to many on MM), but I got in last year when it was paying inflation + X%. I can't remember. Does anyone recall what the percentage was last May? Anyway, now it's back to the rate of inflation. Still lower than cds for the moment.

www.consumerfinance.gov/ask-cfpb/what-is-a-money-market-account-en-1007/

I think a CD or a CD ladder with 3 and 5 year CDs might be what you want. Put 25-30% in the 3 year in case you need it or want to do something else with it. Stick the rest in a 5 year. You can always withdraw it and pay the small penalty.

[Mushe]

Thank you so much, sadlebred! We definitely weren’t clear on the penalty, and knowing it’s not too much makes sense now. We feel like life is really in flux right now with both of our sets of parents aging, and it feels better to park it somewhere safe.

[tvlmm]

Wealthfront Bank has great high-yield savings right now. You can keep money there, earning over 5%, before deciding on which CDs to get. I am happy to share a referral link which will add .5% to your rate.

[dr.girlfriend]

I don't know too much about CDs, but I'll just point out that high yield savings accounts are paying over 5% right now. I've had mine at FNBO Direct for over a decade now, and they always stay competitive, whether rates are terrible or awesome. They are at 5.15% APY right now, and of course you are not locked in like CDs (for better or worse I guess).

[ohgillian]

Oct 2, 2023 14:01:28 GMT -5 dr.girlfriend said:

I don't know too much about CDs, but I'll just point out that high yield savings accounts are paying over 5% right now. I've had mine at FNBO Direct for over a decade now, and they always stay competitive, whether rates are terrible or awesome. They are at 5.15% APY right now, and of course you are not locked in like CDs (for better or worse I guess).

This is what I was also thinking. The difference in CDs and HYSA right now is pretty minimal and some HYSA are higher than a lot of CDs. But this comment is based on my looking about a month ago.

[Mushe]

Oct 2, 2023 6:20:36 GMT -5 tvlmm said:

Wealthfront Bank has great high-yield savings right now. You can keep money there, earning over 5%, before deciding on which CDs to get. I am happy to share a referral link which will add .5% to your rate.

Thanks, and sure! I’ll PM you my email address. We will likely keep some just in cash, so that’s nice to have an option.

[Mushe]

Thank you, Drgirlfriend and ohgillian! We were trying to sort that out too. I think my husband is more concerned than I am about interest rates dropping in the next few years. If we’re looking at 3-5 years in a CD, it’s a question of how much we’re risking by putting it into a HYSA where the rate will change vs locking in a rate in a CD.

[ohgillian]

Oct 3, 2023 10:17:14 GMT -5 Mushe said:

Thank you, Drgirlfriend and ohgillian! We were trying to sort that out too. I think my husband is more concerned than I am about interest rates dropping in the next few years. If we’re looking at 3-5 years in a CD, it’s a question of how much we’re risking by putting it into a HYSA where the rate will change vs locking in a rate in a CD.

Honestly I'm having this same debate with myself now. I have some funds I don't anticipate needing until 2026, but do I want to lock in an 18 month CD at my credit union for 5.75%? Will rates go up? It's hard to be sure what to do. 

[Mushe]

Follow up!

H got the initial check, which is most of what he’s due from the estate (long story about an outstanding loan from the relative). We transferred 3/4 of it and are doing a mix of CDs and treasury bonds that are laddered at 1/3/5 years, lowest to highest.