Author Topic: where to get CD rates?  (Read 4229 times)

Offline Dan

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Re: where to get CD rates?
« Reply #20 on: September 15, 2010, 05:00:15 PM »
so if i open an account in the next 15 days for a 3 month cd, i can renew it a week later (with more money as well) and get the higher rate plus .25??! that sounds too easy of a trick....
Correct.
The catch is that you get the CD rate as of the date of maturity.  So if rates go down by then...
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Offline moe

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Re: where to get CD rates?
« Reply #21 on: September 15, 2010, 05:16:27 PM »
Correct.
The catch is that you get the CD rate as of the date of maturity.  So if rates go down by then...
will prob go up a drop...my 2 cents.

Offline azhoopsfan

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Re: where to get CD rates?
« Reply #22 on: September 15, 2010, 05:52:30 PM »
If you factor in federal and state taxes on the interest earned (combined 40% or more), the true return is in the 1.5 - 1.7% range. 

If you compare that rate with the BankDirect deal (1 mile for $10 paid monthly, plus very small interest), you're really comparing about 1.3 cents to 1 AA mile. 

Since it's extremely likely that you won't complete the term on this CD (rates will surely go up within 5 years), it's more likely you'll get the lower rate after penalty. 

Offline bosoxfan

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Re: where to get CD rates?
« Reply #23 on: September 15, 2010, 05:57:43 PM »
If you factor in federal and state taxes on the interest earned (combined 40% or more), the true return is in the 1.5 - 1.7% range. 

If you compare that rate with the BankDirect deal (1 mile for $10 paid monthly, plus very small interest), you're really comparing about 1.3 cents to 1 AA mile. 

Since it's extremely likely that you won't complete the term on this CD (rates will surely go up within 5 years), it's more likely you'll get the lower rate after penalty. 

yes but the state taxes are taken off on the federal return

Offline azhoopsfan

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Re: where to get CD rates?
« Reply #24 on: September 15, 2010, 06:01:58 PM »
yes but the state taxes are taken off on the federal return

Pretty sure you only get a deduction for state taxes not a credit.  So, with the increasing federal rates and state taxes at 9.5% (in CA at least), likely going to still reach the 40% range. 

Offline Dan

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Re: where to get CD rates?
« Reply #25 on: September 15, 2010, 06:06:27 PM »
If you factor in federal and state taxes on the interest earned (combined 40% or more), the true return is in the 1.5 - 1.7% range. 

If you compare that rate with the BankDirect deal (1 mile for $10 paid monthly, plus very small interest), you're really comparing about 1.3 cents to 1 AA mile. 

Since it's extremely likely that you won't complete the term on this CD (rates will surely go up within 5 years), it's more likely you'll get the lower rate after penalty. 
I can see it being 1.5-2% based on the
-length you keep the CD
-marginal federal tax rate
-your state taxes
But how did you get down to 1.3% to 1 AA mile?  Bank Direct only pays .05% interest (.03 as you would say after taxes) on the mileage checking.
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Offline azhoopsfan

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Re: where to get CD rates?
« Reply #26 on: September 15, 2010, 06:11:38 PM »
I can see it being 1.5-2% based on the
-length you keep the CD
-marginal federal tax rate
-your state taxes
But how did you get down to 1.3% to 1 AA mile?  Bank Direct only pays .05% interest (.03 as you would say after taxes) on the mileage checking.

Take a $10 investment and assume an interest rate of 2.74%.  In one month you would earn 1 AA mile (ignore the nominal interest BankDirect pays, which is a slight bonus).  Or you would earn $0.0228 pre tax ($10 x .0274 interest / 12 months).  Assume a 40% tax rate, and you end up with $0.0137 per month (or 1 AA mile).  Throw in the nominal BankDirect interest and you're at $0.013 for 1 AA mile. 
And that's only if you make it 2 full years to get the 2.74% rate. 
 

I like the flexibility of the checking account and the benefits (special billpay, direct deposit, atm card, etc.) that Bank Direct gives.
« Last Edit: September 15, 2010, 06:15:32 PM by azhoopsfan »

Online AsherO

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Re: where to get CD rates?
« Reply #27 on: September 15, 2010, 06:46:03 PM »
Take a $10 investment and assume an interest rate of 2.74%.  In one month you would earn 1 AA mile (ignore the nominal interest BankDirect pays, which is a slight bonus).  Or you would earn $0.0228 pre tax ($10 x .0274 interest / 12 months).  Assume a 40% tax rate, and you end up with $0.0137 per month (or 1 AA mile).  Throw in the nominal BankDirect interest and you're at $0.013 for 1 AA mile. 
And that's only if you make it 2 full years to get the 2.74% rate. 
 

I like the flexibility of the checking account and the benefits (special billpay, direct deposit, atm card, etc.) that Bank Direct gives.


You're not factoring in compounding interest. AA miles don't compound (imagine they did :D )...

Offline azhoopsfan

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Re: where to get CD rates?
« Reply #28 on: September 15, 2010, 06:48:38 PM »
You're not factoring in compounding interest. AA miles don't compound (imagine they did :D )...

True.  Not sure what the compound period is on the CD.  I'd be curious if anyone wants to figure that out and compare the numbers.   

Offline Dan

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Re: where to get CD rates?
« Reply #29 on: September 15, 2010, 07:02:08 PM »
Assuming you keep $10K in Ally for 5 years at 2.99% APY you would have $11,589.26.
Going with a 40% tax rate that means you earned $953.56 post-tax dollars.

Alternatively with Bank Direct you would earn 60,000 miles and $25, or $15 post tax.
So in that scenario it's 1 mile or (938.56/60,000) = 1.564 cents.
--------------------------------------------------------
For 2 years, $10K at 2.74% APY you would have $10,555.67.
Going with a 40% tax rate that means you earned $333.40 post-tax dollars.

Alternatively with Bank Direct you would earn 24,000 miles and $10, or $6 post tax.
So in that scenario it's 1 mile or (327.40/24,000) = 1.364 cents.
-------------------------------------------------------
In short, before I was sure I would dump a nice chunk of money in Ally, now I'm not really sure...
« Last Edit: September 15, 2010, 07:08:30 PM by Dan »
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Offline azhoopsfan

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Re: where to get CD rates?
« Reply #30 on: September 15, 2010, 07:16:32 PM »
Assuming you keep $10K in Ally for 5 years at 2.99% APY you would have $11,589.26.
Going with a 40% tax rate that means you earned $953.56 post-tax dollars.

Alternatively with Bank Direct you would earn 60,000 miles and $25, or $15 post tax.
So in that scenario it's 1 mile or (938.56/60,000) = 1.564 cents.


Thanks Dan.  But, if rates go up you're not going to keep your money in this CD while you could get more elsewhere --- so you'll have to eat the penalty and get a lesser return.  Alternatively, if you did Bank Direct and took the miles, you can immediately jump into a CD or MMA later when rates go up without penalty. 

If you knew rates were not going up and you knew you wouldn't need to cash out in 5 years, then I'd definitely take the cash instead of the AA miles.  But with the reduced return when you factor in the penatly --- it's a close call.

BTW, Dan, how low would the return have to be for you to choose miles over cash? 

Offline Dan

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Re: where to get CD rates?
« Reply #31 on: September 15, 2010, 07:33:57 PM »
Thanks Dan.  But, if rates go up you're not going to keep your money in this CD while you could get more elsewhere --- so you'll have to eat the penalty and get a lesser return.  Alternatively, if you did Bank Direct and took the miles, you can immediately jump into a CD or MMA later when rates go up without penalty. 

If you knew rates were not going up and you knew you wouldn't need to cash out in 5 years, then I'd definitely take the cash instead of the AA miles.  But with the reduced return when you factor in the penatly --- it's a close call.

BTW, Dan, how low would the return have to be for you to choose miles over cash? 
That's why I calculated the return for 2 years with the penalty rate of 2.74% as well. 1.364 vs. 1.564 cents per mile.

I value my miles higher than most people.  For AA between 1.7 and 2cpm.  But still cash is cash.  My crossover point is probably at 1.5 cents.  But with varying factors like unknown marginal tax rates, unknown future CD rates, and the potential for mileage deflation this is a complicated puzzle!
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