Buying CDs

Discussion of the Cash portion of the Permanent Portfolio

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Austen Heller
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Re: Buying CDs

Post by Austen Heller » Sat Feb 20, 2016 12:52 pm

sophie wrote: Thank you Austen!  I just learned something useful.  May I also point out that in the event of rising rates, the tax benefit you get from claiming the Treasury's capital loss means that you might do no worse than selling the CD and sacrificing 6 months of interest, unless rates really skyrocket.  In which case your gold gains will more than make up the loss.

I wish it were otherwise, but my state/local tax situation just about wipes out the advantage of the CD.  I pay more than half my federal tax in state/local.  Ouch.
I hear you.  NYC really lays the taxes on thick.  I am also in a high-tax area (CA).  If you invest only in an IRA, then CDs might make more sense, but in a taxable account, the advantages of the CD over the treasury bond start to slip away.  Just a few months ago, the yield spread between the 5-yr CD and the treasury was only about 0.5%, making the treasury the easy choice for a taxable account.  The spreads have widened, but the treasuries can still make sense.  A hybrid approach is also reasonable.
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