Add on CD as insurance against falling rates

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robertmcd
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Joined: Tue Aug 09, 2016 9:06 am

Add on CD as insurance against falling rates

Post by robertmcd » Thu Nov 08, 2018 1:42 pm

United bank has a special going on, a 19 month CD yielding 3.15%. They call it a flex up cd which means you can make up to 5 additional deposits into it before it matures. By funding it with $500 (the minimum) you are effectively getting paid a decent rate for insurance against rates dropping.

These add on CD's don't come around that often, especially with a solid rate, and I like to fund them with the minimum in order to get this insurance.

StopIroningShirts
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Location: Texas
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Re: Add on CD as insurance against falling rates

Post by StopIroningShirts » Sun Nov 11, 2018 8:16 am

That looks like a good deal. How bad is the penalty if you have to withdraw the funds?

I tend to check Fidelity/Vanguard's brokered CD pages to see the going rate. That 19 month offer is slightly better than a 24 month brokered CD

chevca
Posts: 1918
Joined: Wed Jul 26, 2017 11:22 am

Re: Add on CD as insurance against falling rates

Post by chevca » Sun Nov 11, 2018 9:25 am

Against falling rates? Or, is that the bank's insurance against rising rates?

Either way, that's a pretty good deal for 19 months, IMO. Go for it if you'd like. But, I don't think you need to worry much about falling rates in the next year and a half, if that's the main reason you're looking at this.

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peterinjapan
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Location: Japan!

Re: Add on CD as insurance against falling rates

Post by peterinjapan » Sun Nov 11, 2018 9:59 am

I love Fidelity's CD ladders, which let you automatically re-renew them. Really good rates too (3.10 for 24 mo).

https://fixedincome.fidelity.com/ftgw/f ... -new-issue

LinusP
Posts: 53
Joined: Fri May 18, 2018 10:29 am

Re: Add on CD as insurance against falling rates

Post by LinusP » Sun Nov 11, 2018 10:59 am

I've used Term Deposit Plus accounts from Mountain America Credit Union in the same way:

https://www.depositaccounts.com/banks/m ... cu/offers/

Only $5 to open, and need a $10/mo auto-transfer into the account. The early withdrawal penalty (EWP) is steep at 365 days dividends on the full amount if the deposit (regardless of how much you withdraw).

I figure the 5-year term is good because 1) I can still use it if rates drop after, say, 4 years, and 2) If rates drop, I can keep the higher rate longer. I also don't mind the EWP - with the minimal amount I keep in the account, it's not that relevant, and if rates drop and I put a lot more money in, I'll likely want to hold it until the end of the term anyway.

Deposit Accounts has an article listing the features to look for in this kind of CD, and the Term Deposit Plus accounts only downside is a max of $100k:

https://www.depositaccounts.com/blog/se ... on-cd.html

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