The Survival Podcast Forum

Finance and Economics => The Money Board => Investing and Saving => Topic started by: RipTombstone on January 24, 2009, 12:58:25 AM

Title: Certificates of Deposit?
Post by: RipTombstone on January 24, 2009, 12:58:25 AM
Jack was talking about CDs one day, and said that he bought a 1 year, 2 year, and a 3 year with his money. Then after the first year, he bought another 3 year, and repeated that cycle. My questions are, without going to the bank and asking:
Do they usually have a minimum amount that they sell a CD for?
What does the money get used for?
Roth IRAs worth looking at?

We are basically trying to put away a little for retirement, other than our 401ks. Our jobs are VERY secure (teacher and city water), but want to put away some extra.

If any of you have experience, please let me know. Thanks.
RipT
Title: Re: Certificates of Deposit?
Post by: T Kehl on January 25, 2009, 04:54:32 PM
The minimum will depend on the bank.  Some have none.  Most are at least $500 with levels at $2500 and $10k.  As a general rule the higher minimum CD's will give a better yield.  I would recommend calling several banks.  It will save time, gas, and you will be surprised how much the interest rates will vary.  Especially with the turbulance in the market today.

The bank can use the money for investment as they choose.  Could be T-bills, mortgages, stocks, etc.  They use their knowledge and a big pool of CD's to invest to get more money than they give you.  Thus they make a profit and still pay interest, but your interest is garanteed, theirs isn't.

No opinion on the Roths.  I haven't looked into it in enough depth.
Title: Re: Certificates of Deposit?
Post by: Stein on January 26, 2009, 08:00:37 PM
Think of a CD as a savings account that you promise not to touch for one year.  It is virtually the same thing.  The bank knows you won't come looking for the money tomorrow and this helps their cashflow and planning.

If you don't have a Roth IRA, I would absolutely set one up.  If you are looking at investing in CDs, any bank would jump at the chance to set one up for you.  With a Roth, you won't pay any taxes on the interest, but you can't touch the interest until retirement age.  You can take the contributions out at any time, just not any gains.  The catch is you are limited to $5000 a year for you and your spouse - if you have one.  The only way I wouldn't use a Roth is if you needed the principle AND interest in the short term.  If you can leave at least the measly interest in there for a long time, they are a fantastic tool.

Finally, also look into government bonds like I bonds.  They may pay a better rate with equivalent security.
Title: Re: Certificates of Deposit?
Post by: RipTombstone on January 26, 2009, 08:05:24 PM
Thank you gents. Will look into this when the income tax refund (if) comes back this year.
RipT
Title: Re: Certificates of Deposit?
Post by: tallfoo on February 22, 2009, 03:32:11 PM
CDs are a great way to invest.  There is no chance of spending the money on a new big screen TV, and the payback is guaranteed.

I did read about some banks selling "CDs" that were not actually insured (which is not right).  So make sure that you ask about that before you buy one.