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#1: Re: Adjustable Rate CD Thoughts

Posted on 2006-03-07 17:32:09 by Elle

&quot;Bucky&quot; &lt;<a href="mailto:uw_badgers&#64;" target="_blank">uw_badgers&#64;</a>&gt; wrote
&gt; Andy wrote:
&gt;&gt; So, I personally would not make any choices based on
&gt;&gt; predictions of
&gt;&gt; long term interest rate trends. I am keeping all my cash
&gt;&gt; in 6 month
&gt;&gt; CDs and T-Bills and an EmigrantDirect account so if and
&gt;&gt; when interest
&gt;&gt; rates finally move I will not be stuck in something with
&gt;&gt; a low rate.
&gt; Isn't that making a choice based on prediction of long
&gt; term interest
&gt; rate trends? You're predicting that interest rates will
&gt; move up, so
&gt; you're keeping cash to 6-mos or less, so that you won't
&gt; get stuck in
&gt; something with a low rate.
&gt; If you were truly ignoring long term interest rate trends,
&gt; then you
&gt; would have fixed income at all kinds of term lengths (6
&gt; mo, 1 yr, 5 yr,
&gt; 20 yr, etc).

Right. I have other CDs and am in fact laddered at six-month
intervals, with one step-up CD and my longer term CDs being
adjustable once. The step-up CD is from GMAC (FDIC insured)
but is callable. It's the first and last callable CD I'll
ever have! Bad choice. But, ha, it should be interesting to
watch, given the chatter from General Motors about selling
GMAC. I could have done worse, and it is stepping up pretty
nicely every year. That is until it's, um, called.

People who argue not to go out more than a year or so with
CDs seem to miss that generally, the longer the maturity,
the higher the yield. Right now some of my older CDs (with
around 3 years, tops, remaining on them) won't pay as much
as a shorter maturity new issue CD. But they paid a lot more
than shorter maturity CDs and money markets this past year.

My goal with my fixed income, low risk investments is to
stay diversified, with nothing going out more than about
five years, and remember that using 20/20 hindsight isn't a
reasonable way to assess how good one's past choices were.

Dapperdobs, what you say is helpful and rings a bell from my
anecdotal reading on the Fed's plans. I'm thinking that I
should wait a year, maybe see two more rate hikes (which
jives also with Andy's comments on short-term rates, at
least), maybe see the yield curve &quot;uninvert,&quot; and then
adjust my CD's rate.

This past week is the first time in I think several months
that I've seen the five-year CD rates climb at the bank
where I have my CD, which may signal a trend that things are
getting a bit less crazy, re longer-term vs. shorter term
rates. The sites I am seeing with the current yield curve
contrasted against that of a month ago suggest maybe a bit
of flattening.

Andy, I follow what you're saying re the capricious of
intermediate to longer term rates right now.

I realize there are no guarantees but just 'best
guesstimates' on something like this.

Thanks, all.

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