Montauk Credit Union Offering 5 yr. CD Rate of 2.50%

[Reub]

Not to steal KevinW's thunder, but I noticed that 5 yr. CD rates are rising considerably. Montauk Credit Union, as an example, is now offering 2.50% for a 5 yr. CD with NCUA insurance.
Here is the link:

http://montauk-cu.com/rates/

It sure makes you wonder why one would stick with SHV as long as you stayed within the insurance limits.

Additionally, Self-Reliance New York Federal Credit Union is offering a 5 yr. CD paying
3.05%, but I hesitated to put this one first as it almost sounds too good to be true for federally insured money and is some kind of a Ukrainian credit union although still insured by NCUA.

http://www.selfrelianceny.org/rates.htm

[Pointedstick]

If you can't sell quickly without a penalty, than I'd be wary of tying too much of your cash portion in those kinds of much less liquid investments, no matter how good the interest rate is.

And conversely, if someone offered me a 5-year CD at more than 3% with no early redemption penalty, I'd look into whether they were affiliated with the Bank Of Nikolai.

[KevinW]

Not to steal KevinW's thunder, but I noticed that 5 yr. CD rates are rising considerably.

My thunder is safely in place. 

Where there's yield, there's risk, ergo bank CDs are riskier than Treasury bills. IMO the whole point of cash in a PP is to be a risk-free asset (aside from inflation risk) so as always I'm uncomfortable using anything but the safest cash vehicle available.

But, of course, everyone should do what they think is best with their own money. If you are more comfortable with the risk/reward profile of bank CDs than T-bills, go for it.

[AdamA]

Not to steal KevinW's thunder, but I noticed that 5 yr. CD rates are rising considerably. Montauk Credit Union, as an example, is now offering 2.50% for a 5 yr. CD with NCUA insurance.
Here is the link:

http://montauk-cu.com/rates/

It sure makes you wonder why one would stick with SHV as long as you stayed within the insurance limits.

Additionally, Self-Reliance New York Federal Credit Union is offering a 5 yr. CD paying
3.05%, but I hesitated to put this one first as it almost sounds too good to be true for federally insured money and is some kind of a Ukrainian credit union although still insured by NCUA.

http://www.selfrelianceny.org/rates.htm

At the risk of stating the obvious, be careful with this.

A rising interest rate in a cash vehicle might be the first sign of trouble.

[Reub]

After seeing SHY fall considerably in the last two days I am becoming more convinced that FDIC insured CD's are a good alternative within a PP. After all, I don't like to see my cash portion decline at all while bonds, stocks, and gold crash simultaneously.

[Pointedstick]

"Considerably?" Over the last month, it's barely down 0.17%:



That seems pretty darn stable to me, considering that rates have been rising.

[Reub]

That's .17% more than a CD, for which you can now earn 2.5% guaranteed.

[MediumTex]

That's .17% more than a CD, for which you can now earn 2.5% guaranteed.

As long as you keep enough of your PP in liquid cash so that it's available for rebalancing or another emergency, putting a little money in CDs could be a good idea, so long as you understand the additional risks involved compared to treasuries.

I still think that ibonds are the best deal on the cash side of the PP and I would max that out before doing anything else.

[Reub]

Jim Rickards just tweeted:

"The definition of a bank account: An IOU, backed by IOU's".

Maybe I'll reconsider.......

[rickb]

That's .17% more than a CD, for which you can now earn 2.5% guaranteed.

Guaranteed?  Guaranteed by whom, exactly?  FDIC?  What do you suppose might happen if a major bank blows up (pick one, say BoA)?  Does the FDIC have enough funds to deliver on its guarantee?  If not, what do suppose might happen?  Will Congress pass a FDIC "bailout" bill, backstopping the "guarantee"?  Would your Tea Party friends vote for such a bill?  Even if it delivers, will you get your 2.5% interest or perhaps only your principal? 

Maybe I'll reconsider.......

Maybe you should.

[Pointedstick]

Would your Tea Party friends vote for such a bill?

There's no need for that sort of thing here. We're all friends.

That said, no, I don't believe they would.

[rickb]

Would your Tea Party friends vote for such a bill?

There's no need for that sort of thing here. We're all friends.

That said, no, I don't believe they would.

I apologize.  The point is that there's definitely no guarantee that the current Congress would pass an FDIC bailout, due at least in part to the Tea Party faction (who I expect would all vote no).

I think what might actually happen would be something similar to the Cyprus bank "bail in" - where deposits up to some fairly small limit (say $50,000) are honored and amounts above that (capped at the FDIC limit of $250,000) are turned into some class of shares of stock in the bank.

[Bean]

I think what might actually happen would be something similar to the Cyprus bank "bail in" - where deposits up to some fairly small limit (say $50,000) are honored and amounts above that (capped at the FDIC limit of $250,000) are turned into some class of shares of stock in the bank.

This "bail in" scenario scares me, but is not imminent.  Faith in the fractional reserve banking system needs to decline rapidly for this to occur.  It also re-validates why TBills are recommended for the PP.

[jabba]

I think what might actually happen would be something similar to the Cyprus bank "bail in" - where deposits up to some fairly small limit (say $50,000) are honored and amounts above that (capped at the FDIC limit of $250,000) are turned into some class of shares of stock in the bank.

This "bail in" scenario scares me, but is not imminent.  Faith in the fractional reserve banking system needs to decline rapidly for this to occur.  It also re-validates why TBills are recommended for the PP.

Having been caught up in the Cyprus stuff first hand I can honestly say this makes me lose sleep. Your digital money appears in your internet banking but you cannot access it. First panic, then anger and finally resignation that they can do WTF they want. Luckily eventually we lost nothing but it went on for weeks and in one instance is still not finished because of capital controls.

EU banks are terribly under capitalized. In the UK a shrink of 4% or more can send some of them under. US banks have a lot better tier 1 capital in general. I still need to get some gold, then I can sleep easier.