At what spread would you invest in a short term CD vs a High Yield Savings Account?

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yaychemistry
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At what spread would you invest in a short term CD vs a High Yield Savings Account?

Post by yaychemistry » Fri Dec 01, 2017 10:12 am

Synchrony Bank has a limited time offer for a 13 month CD at 1.75% APY. Their High Yield Savings account (where I'm currently saving as much as cash as possible for a house) has a 1.3% APY.

I'm fairly certain that I won't be ready to buy a house in the next 13 months. The question is, is it worth the hassle for the extra 45 basis points of interest to move my money into a CD? If I put most of my current house savings in the CD, that would net ~$200 more than the savings account in the course of a year.

I'm on the fence whether its worth it. $200 is nothing to sniff at, but is it worth locking my money up? Some other factors that I'm thinking about:
  • I do have an emergency fund of ~9 months expenses, so we'll still have some liquidity.
  • There is a non-zero chance that the perfect house becomes available before that year is up. It's very unlikely because we'll probably need more than 13 months to save up to a 20% downpayment on the houses we're interested in.
  • I froze our chexsystems report after the Equifax breach - I'm not sure if that will come into play since I already have an account with them. So maybe it's too late to get this CD anyway.
Appreciate your thoughts. Thanks!

dbr
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Re: At what spread would you invest in a short term CD vs a High Yield Savings Account?

Post by dbr » Fri Dec 01, 2017 10:21 am

You are going to have to quantify hassle and also provide an exchange rate between hassle and dollars.

The only quantifiable issue you have is that you don't want the money locked up when you need it to buy the house and you think that is not a problem so it would be fine to use the CD.

radiowave
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Re: At what spread would you invest in a short term CD vs a High Yield Savings Account?

Post by radiowave » Fri Dec 01, 2017 3:30 pm

If you want to have the flexibility of savings, but higher interest rate from CD, Ally has an 11 mo 1.50% no early withdrawal penalty (there is a 6 day wait period before you can get to your money). Easy online interface allows you to move between CD and savings when you need the cash. This may be the best of both worlds.
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whodidntante
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Re: At what spread would you invest in a short term CD vs a High Yield Savings Account?

Post by whodidntante » Fri Dec 01, 2017 11:32 pm

Before I eliminated fixed income from taxable, I owned a handful of CDs at synchrony. They did a chexsystems inquiry for each one. So you might not be able to open one with your report frozen

kaneohe
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Re: At what spread would you invest in a short term CD vs a High Yield Savings Account?

Post by kaneohe » Sat Dec 02, 2017 12:19 am

radiowave wrote:
Fri Dec 01, 2017 3:30 pm
If you want to have the flexibility of savings, but higher interest rate from CD, Ally has an 11 mo 1.50% no early withdrawal penalty (there is a 6 day wait period before you can get to your money). Easy online interface allows you to move between CD and savings when you need the cash. This may be the best of both worlds.

Just to clarify.....the 6 day waiting period is right after you start the CD , not after you request the withdrawal from the CD, right?

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TinkerPDX
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Re: At what spread would you invest in a short term CD vs a High Yield Savings Account?

Post by TinkerPDX » Sat Dec 02, 2017 12:39 am

i'd consider saving up in a total bond/similar fund to get a little more interest, even though there's a little more risk. Leaving so much money in cash so long sounds the most risky. Ought to get you 2.5%. Worst case scenario is you lose a few percent, but that's fairly unlikely. Trade-off sounds good to me. Good luck.

BusterMcTaco
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Re: At what spread would you invest in a short term CD vs a High Yield Savings Account?

Post by BusterMcTaco » Sat Dec 02, 2017 3:21 am

For me, 1%. Less than that isn't worth the headache. I chose not to even bother with Ally's no risk CD over their straight savings account.

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Post by acanthurus » Sat Dec 02, 2017 5:37 am

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radiowave
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Re: At what spread would you invest in a short term CD vs a High Yield Savings Account?

Post by radiowave » Sat Dec 02, 2017 9:03 am

kaneohe wrote:
Sat Dec 02, 2017 12:19 am
radiowave wrote:
Fri Dec 01, 2017 3:30 pm
If you want to have the flexibility of savings, but higher interest rate from CD, Ally has an 11 mo 1.50% no early withdrawal penalty (there is a 6 day wait period before you can get to your money). Easy online interface allows you to move between CD and savings when you need the cash. This may be the best of both worlds.

Just to clarify.....the 6 day waiting period is right after you start the CD , not after you request the withdrawal from the CD, right?
Yes, you set up the account in Ally, fund it from savings, checking, etc. then it is locked up for 6 days. After the waiting period you can cash it in anytime. I just cashed in one last week for a car purchase, took all of 5 minutes and the funds went directly into checking where I will write out a check for the new vehicle.
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sperry8
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Re: At what spread would you invest in a short term CD vs a High Yield Savings Account?

Post by sperry8 » Sat Dec 02, 2017 9:29 am

BusterMcTaco wrote:
Sat Dec 02, 2017 3:21 am
For me, 1%. Less than that isn't worth the headache. I chose not to even bother with Ally's no risk CD over their straight savings account.
I do exactly the opposite of this and have my whole investing life. I chose the highest APY CD's when I can, chose lower Expense Ratios for funds/etfs and choose no annual fee credit cards over ones with fees where it makes sense. I even call my cable/cell/insurance company every year or two to make sure I'm on the best/lowest cost plan for me. It's $200 now for you OP but a change in perspective to think about saving or earning $200 whenever you can results in many thousands of dollars over time.
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jhfenton
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Re: At what spread would you invest in a short term CD vs a High Yield Savings Account?

Post by jhfenton » Sat Dec 02, 2017 9:42 am

acanthurus wrote:
Sat Dec 02, 2017 5:37 am
1-year treasuries are yielding 1.62% and they trade free at most places. I wouldn't sacrifice the liquidity of treasuries for the extra yield with a CD if you are going to hold it to maturity. Six months ago CDs and savings accounts had an edge over treasuries at the short end of the yield curve, that's since gone away from what I'm seeing.
+1 We're back to reasonable 1-year treasury rates. I wouldn't even consider a 1-year CD at 1.5-1.7% with 1-year treasuries at 1.6%.

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sperry8
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Re: At what spread would you invest in a short term CD vs a High Yield Savings Account?

Post by sperry8 » Sat Dec 02, 2017 10:14 am

jhfenton wrote:
Sat Dec 02, 2017 9:42 am
acanthurus wrote:
Sat Dec 02, 2017 5:37 am
1-year treasuries are yielding 1.62% and they trade free at most places. I wouldn't sacrifice the liquidity of treasuries for the extra yield with a CD if you are going to hold it to maturity. Six months ago CDs and savings accounts had an edge over treasuries at the short end of the yield curve, that's since gone away from what I'm seeing.
+1 We're back to reasonable 1-year treasury rates. I wouldn't even consider a 1-year CD at 1.5-1.7% with 1-year treasuries at 1.6%.
Interesting, thank you for the perspective.
Vanguard Short-Term Treasury Fund Admiral Shares (VFIRX) has a 1.61% yield at the moment. Although it has more interest rate risk than a CD due to its 2yr maturity and duration.
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mega317
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Re: At what spread would you invest in a short term CD vs a High Yield Savings Account?

Post by mega317 » Sat Dec 02, 2017 10:19 am

It seems like it would take as long to set up as the time spent creating and reading this thread.

I got an offer to refi my car that would save me about 200 and decided not to. So I guess my answer is no, but I think that would take more effort.

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sperry8
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Re: At what spread would you invest in a short term CD vs a High Yield Savings Account?

Post by sperry8 » Sat Dec 02, 2017 10:40 am

mega317 wrote:
Sat Dec 02, 2017 10:19 am
It seems like it would take as long to set up as the time spent creating and reading this thread.

I got an offer to refi my car that would save me about 200 and decided not to. So I guess my answer is no, but I think that would take more effort.
It always amazes me how many people won't spend 15 minutes to earn $200. That's $800 per hour. How much do y'all make?
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mega317
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Re: At what spread would you invest in a short term CD vs a High Yield Savings Account?

Post by mega317 » Sat Dec 02, 2017 10:45 am

Fair point. My counter is that if I could choose how often I spend 15 minutes for 200, I would have a new job. A one time thing is less meaningful to my life. And I assumed a refi would be a lot longer than that -- gathering paperwork, reading fine print, etc but maybe I'm wrong.

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Raybo
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Re: At what spread would you invest in a short term CD vs a High Yield Savings Account?

Post by Raybo » Sat Dec 02, 2017 1:01 pm

With locked credit, buying a CD from a bank is a major hassle. While I could buy them in my Vanguard investment account, I would lose any early withdrawal option.

I don't bother.
No matter how long the hill, if you keep pedaling you'll eventually get up to the top.

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