My wife and I recently received a bonus for my work in the navy. We are saving for a down payment on a home we will be purchasing in about two years.

I don't see the need to have access to the money, so I was thinking about getting a 12-month CD (in case we need it in a year), and I was wondering your thoughts.

Any experienced thoughts would be helpful. Thanks.

5/16/2009 7:36:34 PM

in before the lounge

5/16/2009 7:42:59 PM

move it out of the country before obama takes it

5/16/2009 8:03:13 PM

lol to skokiaan

not dnl, you should probably read the description of each board

5/16/2009 8:09:17 PM

my bad, i just read that it says navy. you need obama to get dat money to stay on the government dole

5/16/2009 8:16:50 PM

^^i guess so

5/16/2009 8:30:52 PM

CDs are not a bad option. Of course if you get CDs you are better off going with a bank like ING which usually offers higher rates than the brick and mortar banks. You might also want to consider a short-term bond fund like Vanguard's Short-Term Bond Index Fund Investor Shares (VBISX) which is currently yielding a bit over the ING CDs. 12-month ING is running at about 1.5% and VBISX reports a 30-day SEC yield of 2.24% with an expense ratio of 0.22. Depending on your overall income you might want to consider a tax-exempt short term bond fund like VWSTX which currently yields less than the ING CD (1.48%) but carries federal tax exemptions which make the overall yield higher depending on your tax rate.

Unless you're in quite a high tax bracket you're probably best off with either a 12-month CD from a bank like ING or a short-term bond fund like VBISX. The former is absolutely the safest, the latter does carry some risk of its net asset value declining a bit if interest rates go up in the next year (but it's more liquid, you can sell out whenever you want).

Good luck!

5/16/2009 8:34:36 PM

On a related note: if you decide to get really aggressive and do a CD rate search on bankrate.com, the #1 result is Ally Bank with an impressive 2.8% yield. They're a new kind of bank! NO SNEAKY DISCLAIMERS.

Well, except for the fact that Ally is actually GMAC renamed. You know, the one in need of another bailout! On the other hand, 2.8% is pretty damned good, and they are FDIC insured in the most extreme way..

5/16/2009 8:59:47 PM

looked at that...pretty...interesting...and they charge a fee

5/16/2009 9:10:23 PM

^what are you talking about...I only see an early withdrawl fee. Plus they have a no penalty for early withdrawl CD that is yielding 2.5%, little downside in that one as far as I can tell

5/16/2009 9:26:24 PM

There is no point in getting a 12 month CD right now. Interest Rates are too low and i've been hearing rumors that a rate hike may be in the works within the term to which u are getting a CD. Even if the hike is only .25% this may make a 6-month CD yield higher than a 12 month depending on your bank.

At my bank the NCSECU the current rate of 6-18 month CDs are exactly the same with APY 2%.
This is actually 0.02% lower than the 2.02% APY on my Money Market Account. 0.02% may not be much but it eliminates any benefit of a CD except as a deterrent from spending my money

5/16/2009 10:08:37 PM

... or the interest rate hike doesn't materialize because nobody can predict the way the economy is going this year, least of all you or me, and he loses out on the best deal available today. The guy's just trying to preserve capital. I don't think the simple choice of getting a CD to save for a down payment comes down to rumor mills about the Fed. But that's just me ...

5/16/2009 10:33:08 PM

I agree. Don't put it in a CD until after interest rates recover. You would be better off putting it into a high interest savings account with a variable interest rate. A no-penalty CD would have the same effect.

5/16/2009 10:53:26 PM

^^ the best deal available today?

Fed interest rates are already bottomed out. If you are concerned about your target bank further droppings it certificate for deposit rates at this point than this bank is probably not somewhere u want your money.

Anything sub 2% there is no real reason why to remove the liquidity of cash or near cash equivs unless you are fucking CEO McDouchenozzle trying to safely stash part of your $10million golden parachute somewhere.

5/16/2009 11:58:57 PM

I'll leave this in the Soap Box as long as good info keeps coming. Let me know if you want me to move it to the Lounge--you might get more responses there.

Is this your first house, or at least your only house? If mortgage rates stay low, it might be advantageous to just use a VA loan with 100% financing.

Otherwise, I echo the sentiments that CDs and money market accounts (MMAs) from online-only banks tend to be the best deals going for your purposes.

5/17/2009 1:55:14 AM

duke, thanks for not moving it; I made sure where it should go before I posted in here.

this will be my first house, and we are more than likely going to get a VA loan. we want to have the money regardless, because who knows what may change in two year regarding requirements. And it would be good to have less of a mortgage to begin with, IMO.

5/17/2009 3:44:56 AM

Yeah, another vote against putting in a CD. A high-yield savings account - like ING, for instance, is only going to incur a slight hit on the interest, while keeping your liquidity. Interest rates on 12-month CDs just aren't high enough to justify locking it away for that time.

(Or do as Smoker4 suggests. Either way, taking less than 2% isn't really worth losing access, I'd argue...)

[Edited on May 17, 2009 at 3:52 AM. Reason : .]

5/17/2009 3:50:31 AM

Have you considered the stock market?

5/17/2009 10:46:01 AM

with the $8,000 tax credit this year for first time homebuyers and the temporary low interest rates on home loans... why not just buy the house now? The $8,000 tax credit and sub 5% interest rates are too valuable to pass up if you are bent on buying a moneypit...

5/17/2009 12:29:11 PM

^^^^ yeah, the descriptions say to put threads like this in the Soap Box. In practice, they almost invariably go to the Lounge.

I wouldn't worry about the VA loan program going away. It's been in force for a LONG time, and it would be VERY unpopular to get rid of it now. I planned on putting 10-12% down on my house, but at 5% interest and no real penalty to 100% financing (with a VA loan. i.e., no PMI), I decided that I'd rather just have that cash on hand, earning interest for me, and available for use if I need/want it.

I mean, figure that, on average, you can get at least 4% in a CD or MMA. If the mortgage is at 5%, you're talking fractions of a % over the long run. That isn't worth not having the cash on hand. I'd just finance the whole thing with interest rates being this low.

Now, in 2 years, who knows? Do what you're doing--put the money away like you're doing, then if the scenario holds out where you don't need it for the house, you're in that much better shape in terms of a nice chunk of cash reserves.

5/17/2009 12:45:28 PM

You should plan on keeping enough cash on hand in a MMA to cover your expenses, including debt obligations, for at least three months. I heard that somewhere.

5/17/2009 6:40:06 PM

Yeah, I seem to remember hearing that somewhere, too.

5/17/2009 7:18:06 PM

SECU has a money-market savings acct that is running about 3.25 right now

it was nearly 4% when I first started mine. Its cool b/c you can take money out if you need it, treat it just like a savings acct, with no penalties for withdrawals.

5/17/2009 7:20:02 PM

^

What account are you talking about?

http://www.ncsecu.org/RatesAndFees/DepositRates.html

The only one I see like that is the so-called Summer Cash account which has some odd stipulations related to school years.

5/17/2009 7:53:53 PM

^^ MMA is down to 2.02% unless you got some special rate i have not heard about for bringing your $millions to the bank

5/17/2009 11:01:15 PM

If you qualify, Alliant Credit Union in the Greater Chicagoland area is another good place to open an account. They're rates are some of the best I've found, beating out even State Employees and the big federal credit unions.

5/18/2009 2:34:45 AM

Quote :

"Have you considered the stock market?"

Considered that. Talked it over with the wife. She didn't feel comfortable with it.

5/18/2009 4:45:40 AM

Quote :

"If mortgage rates stay low, it might be advantageous to just use a VA loan with 100% financing."

Go with the VA loan. We did and we have no complaints--and thousands of dollars available to us that would have gone toward a down payment.

5/18/2009 5:08:41 AM

Especially right now. Mortgage interest is tax deductable, so take the money you would have put towards the down payment and put it in the stock market (minus your cash reserves, of course). But if you can try and time it, pull your money out before recessions, not during them.

5/18/2009 10:05:07 AM

https://www.coastal24.com/personal/checking/go-green-checking.html

5/18/2009 10:27:02 AM

I came in here to post about CFCU's Green Checking. To get the interest rate, though, you'll probably have to start using the account, since you'll need to use your visa debit card 12 times a month.

5/18/2009 11:25:21 AM

Quote :

"yeah, the descriptions say to put threads like this in the Soap Box. In practice, they almost invariably go to the Lounge."

yeah, you'd get way more responses if this was in the lounge. tsp just doesnt get as much traffic.

5/18/2009 11:47:44 AM

Quote :

"CFCU's Green Checking"

From the fine print:

Quote :

"APY is variable and may change after the account is opened, and is accurate as of 02-01-09"

... seriously? It's variable and their posted rate is accurate as of _Februrary 1_? Scary.

Quote :

"She didn't feel comfortable with it"

She's smart not to be. The stock market is a very long-term investment, and you said explicitly in your original post that you wanted the money to be on hand in twelve months. That is a stated (and very reasonable) goal of capital preservation.

5/18/2009 12:22:33 PM

The rate has only gone down once or twice ever, and I think only once since I've had it. It used to be 5.01% APY but now it's 4.something%. It's still better and easier than most alternatives, and if the rate goes down too far it's not like it's hard to transfer that money somewhere else.

5/18/2009 12:26:28 PM

They've only changed it once. At first I was , but then I realized I'm still getting 4% which is pretty sweet.

I mean, you can always cancel it if they drop it too much, but I really don't see that happening. I think it's brilliant. They're stealing tons of customers from the big banks and a lot of those people are going to stick around even after things pick back up.

5/18/2009 2:53:44 PM

Quote :

"yeah, you'd get way more responses if this was in the lounge. tsp just doesnt get as much traffic"

yes, but I am looking for responses that are well thought out, and not from complete trolls

quality, not quantity

5/18/2009 7:04:18 PM

hmmm, maybe I just havent checked the rate lately, it was 3.25 last time I checked it

5/18/2009 8:48:50 PM

Quote :

"Considered that. Talked it over with the wife. She didn't feel comfortable with it. "

Stocks yield the greatest returns over time, but for a 2-year timeline, you're rolling the dice (I think you'd likely come out well in this case, but to be safe, you should be thinking of stocks as money that you won't need for 5+ years).

5/18/2009 8:48:55 PM