Posted on April 15, 2010.
With lower rates, which is a better investment: a period of four months cd@5.26% or six months cd@4.9%? Obviously, this involves speculation, but I wonder if the rates are so low, four months after that six months is a better option. Or not.
Personally, I would do 6 months and not myself think.
Chances are that the rate will be less than 6 months from now, when you reinvest ... but they will also lower 4 months from now ... then either the choice of reinvesting at a lower rate.
the question is that you'll be better by reinvesting in 4 months or 6 months? no one knows for sure ...
but stress did it ... Here's how to look.:
buy 6 months ... 100k on you win $ 2,450
Buy July 4 .. you want to win .. 1753.33 then reinvest for 2 months at the current rate of (who knows?) 4%? and you would have a total interest of $ 2,420 at the end of 6 months ... less if rates are lower .. more if higher ...
So do not stress about it ... as you see above about 100k invested, even if you, bad news that only costs you $ 30 in lost profits.
worry more about what the bank will; re doing through ... Is there an Internet bank with no-name who'll be out of business in 2 months and let you fill out paperwork with the FDIC so that you can get your money month after it was supposed to .....
worry more about your liquidity needs .. What are the chances that you, ll need to get their hands on the money sooner than expected >?..... 2 issues are those that will really screw your APY
Cheers
Opt for the six months.
Mathematically it is close to being a wash. I calculate that, four months after the CD matures, you must find a bank willing to sell you a CD of two months at 4.11%. That would give you back exactly as just buying the CD of six months immediately. With interest rates should fall, I can easily see the short-term rates are slightly more or slightly less than 4.11% in four months.
My instinct is to buy the CD of four months at 5.26% on the theory that a bird in the hand is worth two in the bush. But I must admit that the two offers seem reasonable.
5.26% is the best deal. How do you know what will happen in 6 months? Things could change and rates could rise.
