# Variable CD



## KingsX (Sep 21, 2018)

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A regional bank [LA/TX] is offering a new FDIC insured "variable CD" with a base rate 
and the possibility that rate will increase with an increase in the federal fund rate.
 But it never goes down below the initial base rate.

For example, a 5 year CD's base rate is 3% [based on the current  2% fed fund rate.]

I've read many news articles that say the fed fund rate may be increased  several times 
in the next year or so.  If so, this variable CD sounds like a good deal.

Any comments positive or negative about this kind of CD ??

https://www.fgb.net/variable-cd

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## Aunt Bea (Sep 21, 2018)

I've never had a variable rate CD so take this with a grain of salt.

I would look at the terms of the variable rate CD and compare them to the rates of a conventional fixed rate CD paying close attention to the terms of the penalty for early withdrawal.

It may be to your advantage to stick with the conventional fixed rate CD and just pay the penalty if rates start to climb.

It may also end up being six of one and half a dozen of the other.

Good luck!


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## mathjak107 (Sep 21, 2018)

Yep ,you know when banks come up with this stuff odds are they will not work in your favor


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## Ruth n Jersey (Sep 21, 2018)

I just opened a CD  up for 2.65% for 13 months. I'm getting so tired of reading how the rates are soaring. That may be so if you are 30 and can afford to put it in for a 5 year term. At my age 13 months is a little more realistic.


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## mathjak107 (Sep 22, 2018)

Ruth n Jersey said:


> I just opened a CD  up for 2.65% for 13 months. I'm getting so tired of reading how the rates are soaring. That may be so if you are 30 and can afford to put it in for a 5 year term. At my age 13 months is a little more realistic.



odds are that 5 year cd will be behind the curve all to quickly as well . going out longer rarelyu pays when the economy is growing , inflation rising and rates going up to match . but every business cycle eventually has a recession cycle -always . so that is where bonds have the edge since they may fall a bit while rates rise but on the other 1/2 of the cycle they can soar depending how far out you go .

the long term treasuries soared 40% in the last recession and if you held some you got paid to wait collecting interest while waiting for the negative part of the cycle ..


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## jujube (Sep 22, 2018)

I "scatter" CDs so that there's one coming to maturity once a year in the winter time so I know I'll be home to deal with it.  I shop around a lot for good deals.


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## mathjak107 (Sep 22, 2018)

i limit cd's to a year . i only keep 1 years cash which i spend down anyway . everything else is invested based on the time frame i need it


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## oldmontana (Sep 22, 2018)

Ruth n Jersey said:


> I just opened a CD  up for 2.65% for 13 months. I'm getting so tired of reading how the rates are soaring. That may be so if you are 30 and can afford to put it in for a 5 year term. At my age 13 months is a little more realistic.



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After 13 months the rates could be higher and you can get another CD with a higher rate.  A good move on your part in my opinion.


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## Aunt Bea (Sep 22, 2018)

I used to ladder CD's for five years and as rates fell I collapsed them into a money market account that pays the same rate as a two year CD.

I've noticed that rates are starting to trend upward and will probably begin gradually moving some cash back into CD's, we'll see.


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## mathjak107 (Sep 22, 2018)

That is the problem with cd's. all my money markets are higher . i even have a money market more like the old style money markets before the changes and it pays more then the cd's i bought last year .


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## KingsX (Sep 27, 2018)

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One of my IRA CDs came due last week,  so I put it into this new five year variable CD.

Fed raised the federal funds rate .25 yesterday.

So,  October 1 the interest rate on my variable five year CD will go up from 3% to 3.25%.
Experts think the Fed will raise the rate again in December and several more times next year.

But should the Fed funds rate go down... even if it wiped out all the previous fed increases...
my interest rate will never go below the initial 3%.  

 So far, this type of CD appears to be a  win/win.

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## mathjak107 (Sep 27, 2018)

how many bumps up will they allow you ?  most limit you to 2 or so


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## KingsX (Sep 27, 2018)

mathjak107 said:


> how many bumps up will they allow you ?  most limit you to 2 or so




There is no limit and no action required on my part.

The variable CD interest rate automatically goes up beginning the next month every time the Fed raises the funds rate.

It can also go down if the Fed reduces the funds rate [but it never goes below the initial rate, which for the five year is 3%.]

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## Lethe200 (Sep 27, 2018)

Just remember inflation is rising as well. 2017 inflation was 2.13% and 2018 ytd is 2.70%.


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## mathjak107 (Sep 28, 2018)

as long as rates rise and you rise you are  at least tracking rates . but you have to be careful with variable cd' . many start off lower  than market rates .


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## OneEyedDiva (Nov 12, 2018)

Variable when the rate does not go down below your initial offered rate is good.  Variable where it would drop below that, of course, is not.  I remember I bought a CD once that had an interest rate of 14%. That was a long time ago and I purchased it at a small savings and loan company that eventually folded. The world will never see CD rates like that again, I'm sure.  I wonder if you'll reach 4% King.


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## KingsX (Nov 13, 2018)

OneEyedDiva said:


> Variable when the rate does not go down below your initial offered rate is good.  Variable where it would drop below that, of course, is not.  I remember I bought a CD once that had an interest rate of 14%. That was a long time ago and I purchased it at a small savings and loan company that eventually folded. The world will never see CD rates like that again, I'm sure.  I wonder if you'll reach 4% King.




My variable CD went up .25% the first of October after the Fed raised interest rates in September.  Most experts think the Fed will increase the Fed funds rate again in December 2018... and twice next year.  *If that happens, and assuming it is .25% each time *,  the interest rate on my 5 year variable CD will automatically go up from the initial 3% to the 3.25% it is today to 4% by the end of next year.  But if the economy tanks and the Fed reverses course and lowers the Fed funds rate,  my variable CD will never go below the initial 3% rate.


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