Author Topic: where to get CD rates?  (Read 3596 times)

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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