Variable CD

KingsX

KingsX

Senior Member
Location
Texas
.

A regional bank [LA/TX] is offering a new FDIC insured "variable CD" with a base rate
and the possibility that rate will increase with an increase in the federal fund rate.
But it never goes down below the initial base rate.

For example, a 5 year CD's base rate is 3% [based on the current 2% fed fund rate.]

I've read many news articles that say the fed fund rate may be increased several times
in the next year or so. If so, this variable CD sounds like a good deal.

Any comments positive or negative about this kind of CD ??

https://www.fgb.net/variable-cd

.
 

I've never had a variable rate CD so take this with a grain of salt.

I would look at the terms of the variable rate CD and compare them to the rates of a conventional fixed rate CD paying close attention to the terms of the penalty for early withdrawal.

It may be to your advantage to stick with the conventional fixed rate CD and just pay the penalty if rates start to climb.

It may also end up being six of one and half a dozen of the other.

Good luck!
 
I just opened a CD up for 2.65% for 13 months. I'm getting so tired of reading how the rates are soaring. That may be so if you are 30 and can afford to put it in for a 5 year term. At my age 13 months is a little more realistic.
 
Ruth n Jersey said:
I just opened a CD up for 2.65% for 13 months. I'm getting so tired of reading how the rates are soaring. That may be so if you are 30 and can afford to put it in for a 5 year term. At my age 13 months is a little more realistic.
Click to expand...

odds are that 5 year cd will be behind the curve all to quickly as well . going out longer rarelyu pays when the economy is growing , inflation rising and rates going up to match . but every business cycle eventually has a recession cycle -always . so that is where bonds have the edge since they may fall a bit while rates rise but on the other 1/2 of the cycle they can soar depending how far out you go .

the long term treasuries soared 40% in the last recession and if you held some you got paid to wait collecting interest while waiting for the negative part of the cycle ..
 
Ruth n Jersey said:
I just opened a CD up for 2.65% for 13 months. I'm getting so tired of reading how the rates are soaring. That may be so if you are 30 and can afford to put it in for a 5 year term. At my age 13 months is a little more realistic.
Click to expand...

--------------------------------------------------------------------------------------------------------------------------------------

After 13 months the rates could be higher and you can get another CD with a higher rate. A good move on your part in my opinion.
 
I used to ladder CD's for five years and as rates fell I collapsed them into a money market account that pays the same rate as a two year CD.

I've noticed that rates are starting to trend upward and will probably begin gradually moving some cash back into CD's, we'll see.
 
That is the problem with cd's. all my money markets are higher . i even have a money market more like the old style money markets before the changes and it pays more then the cd's i bought last year .
 
.

One of my IRA CDs came due last week, so I put it into this new five year variable CD.

Fed raised the federal funds rate .25 yesterday.

So, October 1 the interest rate on my variable five year CD will go up from 3% to 3.25%.
Experts think the Fed will raise the rate again in December and several more times next year.

But should the Fed funds rate go down... even if it wiped out all the previous fed increases...
my interest rate will never go below the initial 3%.

So far, this type of CD appears to be a win/win.

.
 
mathjak107 said:
how many bumps up will they allow you ? most limit you to 2 or so
Click to expand...


There is no limit and no action required on my part.

The variable CD interest rate automatically goes up beginning the next month every time the Fed raises the funds rate.

It can also go down if the Fed reduces the funds rate [but it never goes below the initial rate, which for the five year is 3%.]

.
 
Variable when the rate does not go down below your initial offered rate is good. Variable where it would drop below that, of course, is not. I remember I bought a CD once that had an interest rate of 14%. That was a long time ago and I purchased it at a small savings and loan company that eventually folded. The world will never see CD rates like that again, I'm sure. I wonder if you'll reach 4% King.
 
OneEyedDiva said:



Variable when the rate does not go down below your initial offered rate is good. Variable where it would drop below that, of course, is not. I remember I bought a CD once that had an interest rate of 14%. That was a long time ago and I purchased it at a small savings and loan company that eventually folded. The world will never see CD rates like that again, I'm sure. I wonder if you'll reach 4% King.
Click to expand...


My variable CD went up .25% the first of October after the Fed raised interest rates in September. Most experts think the Fed will increase the Fed funds rate again in December 2018... and twice next year. If that happens, and assuming it is .25% each time , the interest rate on my 5 year variable CD will automatically go up from the initial 3% to the 3.25% it is today to 4% by the end of next year. But if the economy tanks and the Fed reverses course and lowers the Fed funds rate, my variable CD will never go below the initial 3% rate.
 

You must log in or register to reply here.

Back
Top