CDs VS savings accounts

[kisserofsinners]

I'm setting up an account for our house down payment money. It was recommended that i check out CD's in the 6-12mo range. Looking at the %APY it's better in savings accounts, by a good .2%. It's hard to get info online as everything seems really old (+4years). It is supposed to be higher in the CD's.

Is this a result of Fed interest rates being ridiculously low? Is there something fancy about CDs that makes this make sense?

[RoseRelish]

CDs should always have a higher interest rate than savings accounts because you are promising not to touch CD money until it matures (otherwise face a penalty). In a savings account, you can access the money whenever you want without a penalty - thus there is more risk on the bank's books and they give you less return.

Are you beginning to save for a house down the road or begin actively looking soon? With such low rates out there on both CDs and savings accounts today, I'd probably recommend sticking with savings accounts either way. 0.2% just isn't enough to get me over the edge.

[MrSaturday]

CD rates may drop lower than savings rates if the bank believes the fed rate is going to drop further.  They can drop the savings rate quickly if they need to, but in a CD they're locked into the quoted rate for the duration.

[kisserofsinners]

CDs should always have a higher interest rate than savings accounts because you are promising not to touch CD money until it matures (otherwise face a penalty). In a savings account, you can access the money whenever you want without a penalty - thus there is more risk on the bank's books and they give you less return.

Are you beginning to save for a house down the road or begin actively looking soon? With such low rates out there on both CDs and savings accounts today, I'd probably recommend sticking with savings accounts either way. 0.2% just isn't enough to get me over the edge.

I believe if i was to look within one institution for a CD or savings account the CD would be higher, but looking at all available CD's and savings accounts the tops are 1.05% for CD and 1.25% for a savings account.

I do realize these are negligible numbers...It just seemed weird given that i though, like you, that CD's "should" be higher. I am making sure i wasn't missing something.

If there's no new math on it, the better choice right now is the savings account. I'm certainly not going to keep rate chasing on this; i want to make sure we get set up right to start.

We (the wife and I) want *this* house. There's a lot of reasons, but we know what we want and how long we have to get it. If it fails, we'll be moving and making all sorts of lifestyle compromises we're trying to avoid. At least we'll have a fat 'stache to coming with us. ;o)

[Sylly]

I believe if i was to look within one institution for a CD or savings account the CD would be higher, but looking at all available CD's and savings accounts the tops are 1.05% for CD and 1.25% for a savings account.

Not always true on the first point. I use Orange Savings, currently at 0.80%, and their CDs start at 0.50% and doesn't match the savings rate until 30 months.  My CU's CD rates doesn't beat their highest savings rate until 2 years. It's kinda depressing.

That 1.05% is for 6-12 months? I'm also curious, where is this 1.25% savings account at?

[kisserofsinners]

That 1.05% is for 6-12 months? I'm also curious, where is this 1.25% savings account at?

That 1.05% is 12 month with $5000min!!! ...Totally BS. If you get into the 9 and 6 mo CD's it's just stupid.

...Still a $5000 min, but at least it's worth it, kinda.
http://www.ufbdirect.com/ufbdirect/personal-banking/savings/moneymarket.aspx?scbi=Google%2BUFB%2BMoney%2BMarket&utm_campaign=Google%2BUFB%2BMoney%2BMarket

You can use google to search rates...
https://www.google.com/advisor/uscd
https://www.google.com/advisor/ussavings

[stigto]

It seems we're incredibly fortunate in Scandinavia. In Norway and Sweden you get up to 4% on a savings account (compounded annually) with no amount restrictions and no restrictions on withdrawals either:

https://www.nordax.no/pages/start/

Also, 4.12% on a 2 year CD isn't bad:

http://www.bluestep.no/renter-prisliste.aspx

These are consumer credit companies, I guess they're offering these rates to raise financing for their obscene 20% consumer loans.

[MrD]

If you don't need the money for a year I would look into TIPS.

[kisserofsinners]

If you don't need the money for a year I would look into TIPS.

Can you say more about that? I don't know what "TIPS" is and it's a little too vague to google.

[kisserofsinners]

If you don't need the money for a year I would look into TIPS.

Can you say more about that? I don't know what "TIPS" is and it's a little too vague to google.

...Disregard, they start at 5 years based on what i've found... http://www.treasurydirect.gov/instit/marketables/tips/tips.htm

Thanks for the TIP. ;o)

[velocistar237]

There are also TIPS funds as well as short-term bond funds (ETFs exist, too). There is some difference between buying a bond and buying a bond fund. That Fidelity link pushes the fact that bond funds are professionally managed, but the rest is helpful.

[RoseRelish]

I wouldn't buy a bond fund with money that you want back in a year. Bond funds are riskier than individual bonds - managers are forced to buy/sell as they get inflows/outflows - which can make the results differ greatly from a single bond or even a group of bonds.

[MrD]

If you don't need the money for a year I would look into TIPS.

Can you say more about that? I don't know what "TIPS" is and it's a little too vague to google.

...Disregard, they start at 5 years based on what i've found... http://www.treasurydirect.gov/instit/marketables/tips/tips.htm

Thanks for the TIP. ;o)

EDIT: I realize that I meant I-Bonds, not TIPS.