Opinions on CDs?

and I’d still have a good 8 month cushion in my savings in the event of a fiscal emergency.

If the only decision was debt vs a cd, you would put it into the cd. That's just simple math, but its not that simple...

Think about this...inflation is 6.5%. let's say you lock the cd in for a year term. Assuming inflation stays at about the same rate as it is today. Over the course of a year, you gain 4.6% in interest, but lose 6.5% in value due to inflation - this becomes a 1.9% loss in real dollars after a year.

Whether or not that's a good deal for you depends on a lot of things - risk tolerance, expected inflation/expected market returns, etc...

Yeah, this is money that I want to be as risk free as possible. Inflation risk is real, but less so than the 0.02% I’m earning in my savings account.

Better off with I-bonds up to $10,000 per family member.

Inflation is mathematically irrelevant because it affects the CD return and the cost of the debt equally.

Unless you want to pay down the debt for peace of mind, it's better to put the money in the CD.

I’m feeling the exact same. I have enough exposure to stocks … with all my new savings I am buying 2 year CDs.

I did buy $10k I-bonds last year and this year.

What is the term for I bonds?

Same situation. Earlier today I bought a few CDs with different maturity dates today paying higher rates of return than my mortgage rate.

Capital One is paying 5% on an 11 month CD today. Based on the rates on longer terms, it looks like they’re thinking rates have peaked.

So back to your question: 2% on your mortgage is likely not tax deductible. But you are taxed on the interest on your CD…if you have a decent income, you could be paying a third of your earned interest to the feds. If you’re in a high tax state, subtract that too. So this won’t be much of a money maker for you. Being liquid is nice, though. Having a paid for house is nice as well.

Note: Keeping money in the stock market instead of paying down your house will likely have a better profit margin for you and as long as you hold your investments longer than a year, they’re taxed as long term capital gains and not ordinary income.

You are absolutely right. After re-reading, my post wasn't complete and poorly written.

My line of thought was more that there are options/decisions other than CD vs pay down debt. There are options out there that can keep/outpace inflation, so there's no reason you can't at least break even on the investment side. That requires a little more risk tolerance though.

Consider switching to a high yield online savings account. I've been using Ally for years. My APY is 3.4% currently. Doesn't beat inflation but better than 0.02% and highly liquid.

Thanks for all the responses. I’ve been investing in the stock market for 20 years. Never had money in a CD, until yesterday.

I put some cash in there and the same institution has a 3.75% high yield savings, so I added money to that also.

I have a small investment condo that my in-laws rent from me with no mortgage.

I have a fairly bearish outlook on the economy for the next 18-36 months, so I’m not adding anything to the market other than continuing to max my 401K and funding my kids’ 529s.

You're crushing it then. Best of luck.

cheaper than vinyl

That’s not necessarily true right now. (I’m doing this off the top of my head if my numbers are off). I-bond rate is currently 6.89%. 0.4% of that is fixed, the rest changes every 6 months based on CPI-U. CPI-U is expected to be lower on 6 months. You have to hold I-bonds for a minimum of a year—the rate for the full year will be lower than 6.89%. Additionally, 3 month interest penalty if you sell within 5 years. That takes you down to a worse deal than a one year CD. No state income tax on the interest, if you’re in a high tax state.

I’d wait until middle of April when the inflation numbers come out before making a decision about ibonds this year. It’s expected that the fixed rate will go up May 1 (amount unknown) and you’ll be able to calculate the 6 month inflation rate.

But he's paying those low-interest loans back with inflated dollars! Do not pay off those loans (and this is coming from someone who has ZERO debt - paid off houses and cars.

Good points. I did factor in income tax on interest earnings from a CD and others should too. Still the interest earnings even after taxes is higher than the rate of the mortgage.

I put money in CD for mortage payments for the next 18 months with different maturities.

I agree that long term the stock market and bond market one would likely make more money. However, that is long term. I am looking at simple comparisons of level of same level of risk here and short term.

Long term I go with stocks in tax advantaged accounts of 401(k) and Roth accounts and have taxable accounts where I put money in the stocks that don't pay dividends or low amounts of dividends, so I will only pay a long term capital gains taxes on those when I sell them.

Good discussion on this thread, but for completeness, a CD is specified by the interest rate plus the term. I expect everyone commenting understands that liquidity is a factor to be considered, and, while doesn't seem to be a driver in your scenario, that hasn't been stated explicitly.

I didn’t mention the term, it’s 14 months. I put about half of my liquid savings in the CD.