Money - CDs - Terms

[KuJaX]

Does anyone know how long term of a bank CD (certificate of deposit) one can purchase?

I've seen some banks doing 7 years, but are there no 15 year or so for some fixed income people?

Also I'm assuming for retiree's that purchase CD's for their income, it pays out the interest monthly outside of the CD itself?

 

[Apple Of Sodom]

I've never heard of a 15 year CD. Please keep this in mind though: inflation is around 3% per year. This means that $100 today will be worth the equivalent of $97 (in todays dollar) a year from now. Average 5 year CDs pay just under 3% so they keep up with inflation but you don't make any money. 7 year CDs are at about 5%, so you make around 2% after inflation. Of course your money is then tied up for 7 years.

Do you have any loans you could pay off? Car? Home? You would be much better paying those off than getting a CD.

Or you could take a chance and start investing some of that money and trying to make a little on it. Stick it in an index fund (such as the S&P 500) and you are going to make a hell of a lot more in the long run than "breaking even with inflation" PLUS your money can be pulled out at any time. Especially if you put it in now while our who system is in the shitter. You could be brave and even stick that money into BP stock

 

[DaveSimmons]

Interest rates will probably rise within the next 3-4 years (if not sooner) so locking in today's awful rates is not smart.

Get a 1-year CD and let it renew automatically, or earn a little more than that with a high-interest (well, slightly less pitiful anyway) savings account from INGDirect.com or similar.

Also I'm assuming for retiree's that purchase CD's for their income, it pays out the interest monthly outside of the CD itself?

No, perhaps you're confusing CDs with an immediate annuity?

What it is: http://www.themoneyalert.com/ImmediateAnnuity.html

An immediate annuity pays much more than CD rates, but you no longer own the principal, you've handed it over to the insurance company. They bet you'll die early, you bet you'll live forever.

It's a bad time to buy one of those too, since you'll lock in a relatively low payout forever. INGDirect really seems like the best choice until rates head upwards again.

 

[Gibson486]

Hmmm...I always thought CD accounts were untouchable until the terms are done. That is, you can not touch the money (or the interest) until your allotted time has past.

 

[DaveSimmons]

Hmmm...I always thought CD accounts were untouchable until the terms are done. That is, you can not touch the money (or the interest) until your allotted time has past.

That's usually the case, and the APY listed is based on letting the interest compound too, the rate earned will be lower if the interested is not added into the CD account.

 

[Mide]

Hmmm...I always thought CD accounts were untouchable until the terms are done. That is, you can not touch the money (or the interest) until your allotted time has past.

You can take the money out but there will be a huge charge that goes along with it and you'll end up losing money.

 

[KuJaX]

I'm not interested in any CD's myself (especially where rates are right now). Just more of a curious note.

Apple Of Sodom - It may be even worse because the interest collected from a CD is taxable income. Correct me if I am wrong. So your example of earning 2% after inflation on a 5 year CD will actually probably get you upside down because of the taxes paid on income tax?