CD vs Savings, comparing the rates
Rental Property Investor · Phoenix, AZ · Member since 2015 · 224 posts · 50 votes
CD vs Savings, comparing the rates
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Financial Advisor · Virginia Beach, VA · Member since 2017 · 502 posts · 508 votes
8yOriginally posted by @Michael Lee:
Financial Planners and Banks never tell you what could really help you out.
Don't leave us hanging. Give us the secret sauce.
46 Replies
- Investor · Coppell, TX · Member since 2008 · 2k+ posts · 646 votes8y
Hello and welcome to this site! Good All that I can say is that both options suck. The Banks, or most of them, are saying that this is a great place to put your money here as your best alternate when, In fact there are many better options that make you more from your investments, you just have to shop for them. Financial Planners and Banks never tell you what could really help you out.
Good luck to you!
- Financial Advisor · Virginia Beach, VA · Member since 2017 · 502 posts · 508 votes8y
Originally posted by @Michael Lee:
Financial Planners and Banks never tell you what could really help you out.
Don't leave us hanging. Give us the secret sauce.
- Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes8y
Well you gotta realize that the cd ,although safe,is going to tie your money for a set period of time and there’s some penalty for removing it where as a savings account you can pull money whenever and it’s super safe .All These saving bank products suck these days and most people don’t realize that if you put 100$ in a savings account it will take 883 years to double to 200$ at the current rates. Cd is a little better but it’s not as liquid
- Tax CPA · Charlotte, NC · Member since 2014 · 215 posts · 186 votes8y
@Ryan Moore It can just be not knowing these savings accounts exist. I like Ally because with the movement of rates they automatically bump my rate up for me. Also, one draw back is there are 3 day transfers for Ally savings and I believe money market accounts come with an ATM card if you need cash right away.
- Lender · Pensacola, FL · Member since 2017 · 658 posts · 626 votes8y
The interest rate on a high-yield savings account can be changed at any time by the bank.
I first learned about these accounts several years ago. The interest rate at the time was 1.80%. I opened one after the interest rate had dropped to 1.50%. The interest rate got as low as 0.55%. The interest rate has been steadily climbing over the past few months and the account where I have money is now at 1.75%.
The money is liquid and the principal is FDIC insured. The Alliant CU savings account, where I also have money on deposit, offers a similar high rate and is NCUA insured. I think of these accounts as "guaranteed principal" where I might not make as much money on the upside as with other investments, but I'm not going to lose any money on the downside either. I keep a portion of my net worth in these high-yield accounts as a diversification strategy.
- Rental Property Investor · Scottsdale, AZ · Member since 2018 · 13 posts · 8 votes8yIsn’t that a junk bond fund? I wouldn’t consider that anywhere near the realm of a savings or money market account
- Rental Property Investor · NJ · Member since 2018 · 152 posts · 56 votes8y
Originally posted by @Mike V.:
I keep my cash in FFRXH. 4.24% yield and doesn’t move much. Pretty liquid.
Not recommending or endorsing. Just sharing what I do since no one else is ‘giving their secret sauce’.
Keeping "cash" in a floating rate bank loan fund isn't wise for any investor. The 4.24% yield is alluring, but the holdings are rated single-B and BB mostly. On top of that, it's levered. This is far from a cash vehicle. The underlying holdings are loans, not bonds so while there is a market for them, it's not exactly t-bill liquid.
It's your money, so do as your please, but I'm just outlining the risks for the less informed.If anyone else wants to get true "cash" liquidity and better rates than what most banks offer, just buy t-bills directly from the treasury at treasurydirect.gov
Source: am an institutional fixed income portfolio manager managing a significant book
Feel free to reach out with any questions if what I wrote isn't clear.
- Rental Property Investor · Campbell, CA · Member since 2017 · 419 posts · 499 votes8y
Originally posted by @Kon Zel:
Originally posted by @Mike V.:
I keep my cash in FFRXH. 4.24% yield and doesn’t move much. Pretty liquid.
Not recommending or endorsing. Just sharing what I do since no one else is ‘giving their secret sauce’.
Keeping "cash" in a floating rate bank loan fund isn't wise for any investor. The 4.24% yield is alluring, but the holdings are rated single-B and BB mostly. On top of that, it's levered. This is far from a cash vehicle. The underlying holdings are loans, not bonds so while there is a market for them, it's not exactly t-bill liquid.
It's your money, so do as your please, but I'm just outlining the risks for the less informed.If anyone else wants to get true "cash" liquidity and better rates than what most banks offer, just buy t-bills directly from the treasury at treasurydirect.gov
Source: am an institutional fixed income portfolio manager managing a significant book
Feel free to reach out with any questions if what I wrote isn't clear.
Anything over like 2% will have some risk. That’s a given. I’m comfortable because if you pull up the chart in the last 2 years it’s never gone + or - a dime while paying consistently.
Definitely not for everyone.
- Rental Property Investor · NJ · Member since 2018 · 152 posts · 56 votes8y
Originally posted by @Mike V.:
Originally posted by @Kon Zel:
Originally posted by @Mike V.:
I keep my cash in FFRXH. 4.24% yield and doesn’t move much. Pretty liquid.
Not recommending or endorsing. Just sharing what I do since no one else is ‘giving their secret sauce’.
Keeping "cash" in a floating rate bank loan fund isn't wise for any investor. The 4.24% yield is alluring, but the holdings are rated single-B and BB mostly. On top of that, it's levered. This is far from a cash vehicle. The underlying holdings are loans, not bonds so while there is a market for them, it's not exactly t-bill liquid.
It's your money, so do as your please, but I'm just outlining the risks for the less informed.If anyone else wants to get true "cash" liquidity and better rates than what most banks offer, just buy t-bills directly from the treasury at treasurydirect.gov
Source: am an institutional fixed income portfolio manager managing a significant book
Feel free to reach out with any questions if what I wrote isn't clear.
Anything over like 2% will have some risk. That’s a given. I’m comfortable because if you pull up the chart in the last 2 years it’s never gone + or - a dime while paying consistently.
Definitely not for everyone.
Disagree considering a 10yr tsy is at ~2.80 right now. That's literally a risk free return (of course assuming that the US gov't will repay its debt obligations). 4 week bills are yielding ~1.90, 26 weeks are at 2.07. Take a look here:
https://www.treasury.gov/resource-center/data-char...
Again, every investor has their own risk profile, but don't confuse cash with investments. FFRHX is the latter. For those interested, here is the performance over the last few years:
http://performance.morningstar.com/fund/performanc...
Bank loans are a great investment, especially in an uprate environment but they are not cash. One needs to understand the risks when buying them - where we are in the credit cycle, what the structure of these investments is, why they're rated below investment grade, etc.
Mike I'm not picking on you, I'm just trying to lay out that this might not be the best fit for everyone.
- Investor · Coppell, TX · Member since 2008 · 2k+ posts · 646 votes8y
Hello Paul! Thank you for your response. I'm being a little steamy because of the book I'm now reading "Killing Sacred cows" that was mention by one of a book author that I read. He is talking about how we have been told things for years to make us that one of the best investments is to save money by only showing the surface of complicated what kind of return you get and installing fear and ignorance into us.
We were taught by them and most financial planners how to present numbers without any explanation as to what it takes to get there and to make you think they are good and know what they are talking about. They usually make more than you by using your money but never tell you how or how much. Most of their advertising says that they are a good place to go to save your money.
He also explains how putting your money in 401K is a bad way to invest your money and removing some or all of that and getting income tax and a penalty by that should just be looked at as an expense instead of a loss and that even after what was taxed and penalized you can be better off making a decent return on that money which is a better return than the stock market and hoping and the fear that was taught not to touch that and how you can make more elsewhere.
Do you know that if you completely pay that place off for 30 years you pay about 3 times more than what you originally paid for that purchase and the Bank never tells you that and what else they make on your money after you deposit it and that your home and car loan is actually a liability and not assets.
I cannot say any investments that give you a better return than a Bank, I do not think that it would not be hard. It may mean a little work but it will usually well worth the extra labor and that it is alot better than just crossing your fingers and hoping like the money in a Bank savings account or a bank issued CD is paid to you and how a Bank will make much more off of your money. Best wishes!
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes8y
My mother in law has a savings account. Maybe about high 5 digits. Basically supplements social security. Most people live hand to mouth.
Cd and Savings is a fear response for many people who do not know what to do with money and grow it. Inflation can average 2 to 3% a year. Then the IRS on top of that counts that crappy 1 to 2 % annual return as a gain and taxable! LOL
People see safety in these government and do not want to take any risks to get ahead.
I do not use savings accounts. It's another thing to track with a paltry return and my time per hour is more valuable. Just like store cards to save money you have to keep track of all this stuff. Someone can figure out how to spend tons of hours squeezing out an extra 10k a year or they can learn skills and knowledge to make another 500k a year.
Some people love squeezing a penny but others I know with extraordinary wealth do not focus on that.
I remember as a kid when savings account were 10% !
1 to 2% is a massive yawn.
A lot of it is some people spend their whole life saving 100k so they will do anything to accept perceived safety even if 1 to 2%. As someone else mentioned money in the bank is collecting dust and not making people wealthy. To get a higher return is there risk? Sure there is.
If my mother-in-law would have invested in growth investments such as real estate the 5 figures would now be 6 figures instead of the total going down every month hoping the funds outlive the person.
- Investor · Alameda, CA · Member since 2016 · 132 posts · 170 votes8y
@Ryan Moore folks that end up using these products are generally doing so due to lack of education. Interest rates that don't pace inflation are a nasty trick on the investor
- Investor · Coppell, TX · Member since 2008 · 2k+ posts · 646 votes8y
Hello again paul! i think I left out a direct answer to the "secret sauce" and I would say that "knowledge" is the king of it all. I wish you best wishes again!
- Los Angeles, CA · Member since 2018 · 29 posts · 5 votes8y
Originally posted by @Kon Zel:
Originally posted by @Mike V.:
Originally posted by @Kon Zel:
Originally posted by @Mike V.:
I keep my cash in FFRXH. 4.24% yield and doesn’t move much. Pretty liquid.
Not recommending or endorsing. Just sharing what I do since no one else is ‘giving their secret sauce’.
Keeping "cash" in a floating rate bank loan fund isn't wise for any investor. The 4.24% yield is alluring, but the holdings are rated single-B and BB mostly. On top of that, it's levered. This is far from a cash vehicle. The underlying holdings are loans, not bonds so while there is a market for them, it's not exactly t-bill liquid.
It's your money, so do as your please, but I'm just outlining the risks for the less informed.If anyone else wants to get true "cash" liquidity and better rates than what most banks offer, just buy t-bills directly from the treasury at treasurydirect.gov
Source: am an institutional fixed income portfolio manager managing a significant book
Feel free to reach out with any questions if what I wrote isn't clear.
Anything over like 2% will have some risk. That’s a given. I’m comfortable because if you pull up the chart in the last 2 years it’s never gone + or - a dime while paying consistently.
Definitely not for everyone.
Disagree considering a 10yr tsy is at ~2.80 right now. That's literally a risk free return (of course assuming that the US gov't will repay its debt obligations). 4 week bills are yielding ~1.90, 26 weeks are at 2.07. Take a look here:
https://www.treasury.gov/resource-center/data-char...
Again, every investor has their own risk profile, but don't confuse cash with investments. FFRHX is the latter. For those interested, here is the performance over the last few years:
http://performance.morningstar.com/fund/performanc...
Bank loans are a great investment, especially in an uprate environment but they are not cash. One needs to understand the risks when buying them - where we are in the credit cycle, what the structure of these investments is, why they're rated below investment grade, etc.
Mike I'm not picking on you, I'm just trying to lay out that this might not be the best fit for everyone.
It's only risk-free if you are 100% sure you will keep it till maturity. What if rates go up and you need to sell?
- Rental Property Investor · NJ · Member since 2018 · 152 posts · 56 votes8y
Originally posted by @Roxie Kim:
It's only risk-free if you are 100% sure you will keep it till maturity. What if rates go up and you need to sell?
Interest rate risk isn't a system risk. Even rates go to infinity, you're still guaranteed your rate if you hold. The value of your investment will never be 0. Whereas a bank loan can actually go to 0 if the recovery rate at bankruptcy is 0 for that tranche.
- Los Angeles, CA · Member since 2018 · 29 posts · 5 votes8y
Originally posted by @Kon Zel:
Originally posted by @Roxie Kim:
It's only risk-free if you are 100% sure you will keep it till maturity. What if rates go up and you need to sell?
Interest rate risk isn't a system risk. Even rates go to infinity, you're still guaranteed your rate if you hold. The value of your investment will never be 0. Whereas a bank loan can actually go to 0 if the recovery rate at bankruptcy is 0 for that tranche.
Yeah, I know that....that's why I said it's only risk free if you keep till maturity. I understand that the principal underlying value will, absent a government collapse, never be impaired. I'm not advocating a bank loan over a treasury because those two cannot be compared. So if you're are absolutely, 100% sure that you will not need to redeem before the 10 years is up, then I would agree, that it's a risk-free investment. However, in the real world, a ten-year crystal ball just does not happen. Given the current direction of interest rates, I can pretty much guarantee that a 10-year treasury purchased today will be sold at a discount if you tried to sell it in 3-4 years.
- Flipper/Rehabber · Warner Robins, GA · Member since 2018 · 14 posts · 6 votes8yI also looked into Ally and Citi Bank which has some of the highest in dividends right now. I concluded that locking 10k of my liquidity for the length of a year or more (as a base min. limit) was not in my best interest at this time. Now who I did find was Discover Bank who as of last month is offering a 1.59 monthly and a 1.60 annually with no min. required (and yes I asked twice when on the phone with them about 1.59 & 1.60 annual differences). You will have access to your money and it’s no minimum money required limit you must keep after you go through the process to open the account. Only draw backs I can see is that the rate(although one of the top 5 highest I found at the time), it’s not a fixed rate, it’s a flexible which in 2017 June it was .95% (so it had been on the climb). The last I saw was that for a bank to bank transfer it will take approximately two business days (if that’s an issue for someone), and these two where all I saw as an issue at the time. Hope this helps...
- Rental Property Investor · NJ · Member since 2018 · 152 posts · 56 votes8y
Originally posted by @Roxie Kim:
Originally posted by @Kon Zel:
Originally posted by @Roxie Kim:
It's only risk-free if you are 100% sure you will keep it till maturity. What if rates go up and you need to sell?
Interest rate risk isn't a system risk. Even rates go to infinity, you're still guaranteed your rate if you hold. The value of your investment will never be 0. Whereas a bank loan can actually go to 0 if the recovery rate at bankruptcy is 0 for that tranche.
Yeah, I know that....that's why I said it's only risk free if you keep till maturity. I understand that the principal underlying value will, absent a government collapse, never be impaired. I'm not advocating a bank loan over a treasury because those two cannot be compared. So if you're are absolutely, 100% sure that you will not need to redeem before the 10 years is up, then I would agree, that it's a risk-free investment. However, in the real world, a ten-year crystal ball just does not happen. Given the current direction of interest rates, I can pretty much guarantee that a 10-year treasury purchased today will be sold at a discount if you tried to sell it in 3-4 years.
Now you're bringing in concepts such as duration, which are irrelevant to the point I was making as well as the original discussion.
We've veered off course from the original topic which was to compare different cash products.
The only point I was making was that there are better alternatives than CD and savings accounts that offer the same liquidity. That's all.
- Investor · Coppell, TX · Member since 2008 · 2k+ posts · 646 votes8y
Hello Moe! Thanks for your reply and you're vote of confidence.
- Los Angeles, CA · Member since 2018 · 29 posts · 5 votes8y
Originally posted by @Kon Zel:
Originally posted by @Roxie Kim:
Originally posted by @Kon Zel:
Originally posted by @Roxie Kim:
It's only risk-free if you are 100% sure you will keep it till maturity. What if rates go up and you need to sell?
Interest rate risk isn't a system risk. Even rates go to infinity, you're still guaranteed your rate if you hold. The value of your investment will never be 0. Whereas a bank loan can actually go to 0 if the recovery rate at bankruptcy is 0 for that tranche.
Yeah, I know that....that's why I said it's only risk free if you keep till maturity. I understand that the principal underlying value will, absent a government collapse, never be impaired. I'm not advocating a bank loan over a treasury because those two cannot be compared. So if you're are absolutely, 100% sure that you will not need to redeem before the 10 years is up, then I would agree, that it's a risk-free investment. However, in the real world, a ten-year crystal ball just does not happen. Given the current direction of interest rates, I can pretty much guarantee that a 10-year treasury purchased today will be sold at a discount if you tried to sell it in 3-4 years.
Now you're bringing in concepts such as duration, which are irrelevant to the point I was making as well as the original discussion.
We've veered off course from the original topic which was to compare different cash products.
The only point I was making was that there are better alternatives than CD and savings accounts that offer the same liquidity. That's all.
I disagree. I think the fact that you have to hold the treasury for ten years in order for it to be risk-free is not irrelevant at all. That's why the interest rate on the ten year is higher than for treasuries that are shorter term.....to account for the interest rate risk. You claim the ten-year treasury is virtually risk free,....all I'm saying is that I agree, provided you are sure you will keep it for ten years. If not, then the only way you will be able to sell that note is either at a discount or a premium, depending on which way interest rates went since purchase. Why do you think the coupon on the 90-day rate is so much lower? Oh yeah, that's right...because that's the security that TRULY has no risk....as it will mature in 90 days.
- Los Angeles, CA · Member since 2018 · 29 posts · 5 votes8y
Originally posted by @Mike V.:
I keep my cash in FFRXH. 4.24% yield and doesn’t move much. Pretty liquid.
Not recommending or endorsing. Just sharing what I do since no one else is ‘giving their secret sauce’.
On a related note to the ten-year treasuries discussion.... This fund has a lot less interest rate risk than 10 year treasuries as most of its holdings are floating rate securities based on the LIBOR plus a set spread. So as interest rates so up, so will the coupon on this fund's holdings and the NAV per share of the fund will not go down. In fact, it will probably go up. I'm pretty familiar with this phenomenon as I work for a private equity firm that does something very similar to this fund (albeit with more than double the coupon rate). However, just because interest rate risk is mitigated via floating rate securities does not mean this fund does not have its own set of risks......specifically as they pertain to the market value of its holdings based on certain ability to pay interest and principal pricing models and subsequently the NAV/share of the fund. OK, NOW I've veered off course....
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