Switch Money over to 1 Yr CD? Pls Advise

[kayray1]

I have $40k in a money market acct at my credit union, earning 1% interest. Wouldn't I be better off to put some of it - say $30k into a CD for a year or so? I checked rates, and it looks like I could get 1.92 percent if I switched. I currently earn about $21 a month on the money. Surely I could be earning lots more???

thanks

[happygirl]

I'm in a similar predicament. I have roughly 25k sitting in a MMA at 2%. I can't see putting it into a CD (or even laddering CD's) because the interest rates aren't much, if any, higher. I feel irresponsible for not doing something more productive with the money, but I'm not sure what to do.

Oh, and this is money that is not part of my emergency fund so I could do something else with it I suppose. I just don't know what.

[bjl584]

depends whether or not you will need the money in the near future. There's something to be said for maintaining some liquidity even if you are earning a little less on it.

[MonkeyMama]

I generally wouldn't invest in CDs right now. The rates can only go up - which means with a CD you lock in extraordinarily low rates. Better rates can be had in more liquid cash.

I definitely would search out higher interest rates.

If you need liquidity, I'd expect about 2%, and would shop around. I am getting 2% at a Credit Union right now - no fees, minimums or hoops to jump through. As good as it gets I suppose.

[Credit Girl]

I agree. Generally you have to leave your money in cds for a certain amount of time and if you needed that money immediately for any reason, there may be a penalty.

[jIM_Ohio]

I might rephrase the question... and ask more questions.

Why so much money sitting in cash? There are good reasons (many of them) to have such a high amount of cash... there are also bad reasons (many of them) to have such a high amount of cash.

So with 40k, if you can get 2% on a cash investment, it is a good move. I might suggest laddering the money in 12 month CDs

put 4k into money market
put 6k into money market
(10k is initial money market amount, it will always have 4k in it, depending on cycle might have up to 10k).
open 1 12 month CD with 3k
open a 90 day CD with 27k
then in 30 days, take 3k out of money market, open another 3k 12 month CD
then in 60 days, take another 3k out of money market and open another 3k 12 month CD
in 90 days you have 27k maturing, do the 6k/3k split again (6k money market, 3k into 12 month CD)
then repeat this every 90 days.

This way you do not have as much liquidity risk tying all the money up in a single CD. You will always have access to 7k (4k in money market, plus a 3k CD maturing that month).

Or play a risk-reward scenario with money... assuming you have a 5-10 year time horizon to access the cash.

Is it better to have
a) 40k earning 2% and 0k earning 6% or
b) 36k earning 2% and 4k earning 6% or
c) 32k earning 2% and 8k earning 6% or
d) 24k earning 2% and 16k earning 6% (or...)

meaning put some of the money in cash
put some of money into a short term bond fund or other conservative allocation (like RPSIX) which historically earns 6% but puts principal at risk.

[KellyJef]

I am getting 2% at a Credit Union right now - no fees, minimums or hoops to jump through. As good as it gets I suppose.

How do you go about finding credit unions and finding out how much they're paying in interest?

Thanks.

[KTP]

meaning put some of the money in cash
put some of money into a short term bond fund or other conservative allocation (like RPSIX) which historically earns 6% but puts principal at risk.

I am doing this with the lower risk portion of my investments (and actually a portion of my EF). I prefer Vanguard municipal bond funds though because they have a very low overhead and the earnings are tax free! Some tiny amount of principal risk though...but in an emergency you could get a portion of your money out without too much pain.

I must say it sure is nice seeing $200 to $300 rolling in every month that Uncle Sam can't even get close to. At our tax rate even a 2% CD would only really pay us 1.4% or so. The 4% muni return is pure gold.