On Mar 1, 8:38 pm, joshbil...[at]gmail.com wrote:
- quote -

In addition to CDs, I am going to put a few dollars in Lending Club
(www.lendingclub.com), which provides peer-to-peer lending, similar to
Prosper. Current rates are ~8% to 18%, depending on how much risk you
want to accept. The loans are for 3-years, but can be paid off early.

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On Mar 1, 5:38 pm, joshbil...[at]gmail.com wrote:
- quote -

A CD guarantees a rate for a long period at the cost of liquidity or
penalty.
Liquid accounts are basically equivalent to very short bonds
which are going about 3% now. I expect the short term rates
to follow the Fed rate to 2% until the recession is over next year.

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<joshbilsky[at]gmail.com> wrote
- quote -

I did not write "lasting only a few months." I wrote a few
months ago they were higher, period. Twelve months ago they
were also higher (compared to today). Money market rates,
including Countrywide's rates on its various categories of
accounts, generally reflect the trends in the Fed's
benchmark rates.
http://www.federalreserve.gov/fomc/fundsrate.htm shows
these. They were pretty steady (and relatively high) from
about June 06 to September 07, in fact, if you study the
table at this site.

- quote -

Define "comparable." Because on further investigation, I see
your 4.25% account at Countrywide falls into a special
category of money market accounts: A high balance one
(minimum balance of $10,000) with restrictions on
withdrawals (a max of six per month permitted).

Generally, comparable instruments with comparable risk have
comparable yields. Bankrate.com is a good resource to
compare apples to apples (or almost apples), like very short
term CDs to Money Market Accounts. One thing you will find
is evidence of the yield curve inversion of which I wrote.
Countrywide CD promotions excepted, the highest yielding
3-month CD pays 3.4%. That yield is not comparable (at least
not in fixed income parlance) to the highest yielding MM
accounts, with the best paying 4.03% (with a $1000k minimum)
right now, or, if you prefer, to a high balance MM account
like the one at Countrywide.

I am speaking of averages, by the way. Generally, money
market rates are still a bit higher than CD rates for CD
maturities up to a few years, and this is evidence of a
yield curve inversion. Historically speaking, an inversion
is anomalous.

- quote -

My follow-up remark to that was trying to say that, indeed,
you're not missing anything regarding the general pros and
cons of a CD vs. a money market account.

My caveat that Countrywide the institution is also a bit
anomalous, for the reasons I gave, remains. I am not so sure
I would want to bank on it remaining solvent. Your savings
with them are FDIC protected, but I suspect either
Countrywide either (1) knows people do not want to deal with
the hassle of the FDIC kicking in. Hence to lure people to
it, it offers somewhat superior (by just a bit) interest
rates. And/or (2) it has had so many writedowns (a good word
to google and study, for the interested readers, since it
directly affects Countrywide's solvency) that it is
desperate to fill its coffers with cash from savers blah
blah.

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- quote -

If you consider since September of 2006 as a few months, then sure.
My rate back then was 5.25% and has been steady up through December of
2007. Obviously it's much lower now but still in line with a
comparable CD. I prefaced my original question by saying that locking
in the rate was an advantage of the CD. Thanks for your insight.

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<joshbilsky[at]gmail.com> wrote
- quote -

You're grossly out of touch. The Federal Reserve Board
lowered the benchmark interest rate significantly in the
last several weeks. This benchmark rate is essentially a
short term rate that is a large factor in determining how
banks set their own short term rates. Money market and CD
rates plummetted.

All rates were much higher a few months ago. Study more.

- quote -

"Only" that which you already identified: Locking in a rate
with a CD for at least the time the CD has to maturity.

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On Mar 1, 9:05 pm, "Elle" <honda.lion...[at]spamnocox.net> wrote:
- quote -

Obviously the rate can change but at this time, it's 4.25% APY
https://bank.countrywide.com/CWBRates.aspx?tab=sl The rates were even
higher a few months ago at well over 5%. I've had my money in this
account for over a year at it's never been below 4% rate.

- quote -

I am aware of the inverted yield and that the high rates on money
market accounts are abnormally high right now and probably won't last
forever.

- quote -

They were offering the higher rates well in advance of the cash flow
problems of the subprime mortgage crunch. They have always been in
the top tier yields on http://bankrate.com/brm/rate/mmmf_hi...416&product=35
Now you could also argue not to deal with a bank like Countrywide in
the event that they go under and having to deal with FDIC, but I
believe that's another topic.

I understand that these yields will probably go away eventually at
which time a CD would be a better investment. However, my question is
specifically targeted to the present. If I can get the same rate or
higher in an online savings account, with better access to my
investment to move around or even use if necessary, what benefit does
a CD have over it?

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Are you sure this is the current interest rate at
Countrywide? And it is not some sort of short term
promotional rate? Because from my reading, 4.25% is on the
very high side for a money market account.

I imagine you are new to what interest rates have
historically done. Historically, the longer the maturity of
a fixed income product (such as a money market account, CD,
or bond), then the higher the yield.

But today (and the last few years) have been anomalous.
Often during this period the yield curve has inverted,
meaning that longer maturities have not always translated to
higher yields. An excellent, interactive graphic and
accompanying text make the point quickly at
http://www.smartmoney.com/onebond/in...ory=yieldcurve

I currently have the majority of my savings in a Countrywide online
account earning 4.25% APY. Assuming the rate is comparable, what
advantage is there in investing in CDs vs one of these online
accounts? It would seem to me that one advantage of the online
account is that the money is liquid and not tied up for an extended
period of time. Obviously the advantage I can see to the CD is that
you can get locked in on a higher rate for a bit while the online
accounts can fluctuate and change on a daily basis. Am I missing
something here?

Thanks

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