What to Do When a CD is About to Expire?
Back in February, I wrote a Dear John letter to HSBC when their savings rate was reduced to 3.55%. Prior to that letter, I was enjoying a 5%+ rate for quite some time. However, the rapid and frequent rate reductions led me to explore other options. And that is when I found and opened a 7% CD at a local credit union.
Well, well, well…that CD is scheduled to expire this month. So again, I’m exploring my options and have considered the following:
- Leave it in a CD, which will reset at the current CD rate of 4.06% (latest promotion).
- Transfer it to a savings account at the credit union and let it sit until I make a final decision.
- Transfer it back to HSBC at the current rate of 3.5%.
- Withdraw the money and open a Vanguard account - leaving my eFund balance at $13.5k.
I’m seriously considering #4 because…umm. Because…oh, I don’t know. I was going to say something like $13.5k is enough for an emergency fund and I need to start a non-retirement investment account because…blah, blah, blah. But that’s not the real reason, it just sounds good. Trust me, I could have come up with something and you would have been impressed. LOL So I’ll be honest. I just want a Vanguard account already…just because! LOL
Help me out. What would YOU do?
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Let it sit in a bank account so you can have easy access to it. You never know when you’re really going to need that money.
Since you already have an emgernecy fund established I’d go with option #1.
But option 4 is a good alternative.
Which Vanguard fund are you interested in? That affects the answer I would give.
I don’t disclose my actual investment choices on the blog. Don’t want to imply anything to an uninformed reader.[-SM]
I would look at the likely rate of return for the money between option one and option four, compare the two, and then pick whichever one makes me more money. It would depend on whether or not I wanted short-term security or long-term growth possibility. The CD is pretty much a solid short-term return, right? That doesn’t sound bad at all. If it’s invested in Vanguard, it’s not guaranteed, and if it’s mostly stocks, it’ll probably go down in value in the short term, making less money than the CD. But if I’m thinking long term, Vanguard doesn’t sound bad at all, either. If I don’t want to risk losing the money in the short term, maybe I would put most of it in bonds and money market… or I could go with stocks, buy low, ride out the bear market and take advantage of whatever upswing follows this recession in the long term, which might beat keeping it in CDs for the same amount of time. It’s funny, I kinda just blogged about this. See, Single Ma, I been learning stuff…
I consider all investments on a long term horizon. [-SM]
Hey SingleMa!
I would go with #4. Since you already have your emergency fund, I would consider this investment funds.
As for me, I have been on the fence about getting a Vanguard account as well! If you do go ahead and get it, I hope you blog about the whole process!
I sure will, just for you. The blind leading the blind. LOL! [-SM]
#4 if the return is good
With rental property starting to bring in some money, you can bring your E-fund back to where it was in no time.
That’s what I was thinking too. [-SM]
You can still get to (most of) the money in a Vanguard account–it’s easier than a CD. You just cash out some of your mutual funds. Just results in a complicated tax form.
I’m sure you know that if you take it out after less than a year, you get marginal taxes on the gain, but you got marginal taxes on all your CD’s gain. I think it’s a fine place to put your emergency fund if you have enough in other accounts for you to feel secure.
4.5% CD online @ WAMU, as long as you don’t put more than $100,000
It is only for 12 or 13 months and it gives you time to ponder on what to do next.
You have been saying that you want to open a Vanguard account for a while. You didn’t mention how much is in the CD, so given the min. on opening up a Vanguard acct, can you put the min. in Vanguard and stash the rest somewhere in options 1-3? This depends on if you feel comfortable with $13.5K in your EF. I recall you saying that you wanted to maintain at least $15K in the EF. Can you open up the Vanguard account and keep the EF at $15K?
More questions than answers, but if it were me, (as that was your question), I would put $3K in the Vanguard fund to start it off and put the rest in my EF to replenish it, (assuming the CD was more than $3K).
The CD was $7k so $3k to Vanguard would leave $17.5k in the eFund. It’s hard to explain, but less than $20k in my eFund makes me feel incomplete. Perhaps I should return ALL of it to HSBC, then set a goal to save $3k and open the Vanguard account by end of year. I need a new goal to keep me focused so I won’t shop. LOL[-SM]
I’m at a similar crossroads. Finally *yay* made my $10,000 e-fund goal and find myself wanting to increase it to 15k. The uncertainty of the future and wanting to make sure I can best handle what comes my way adds to this number. But I don’t want to sit on unnecessary piles of cash either, and be tempted to spend in any way.
On the flipside I’m eager to begin my Vanguard non-retirement account. Although it’s not my intention to do so, that money could be pulled out in a pinch as well. Personally, I’ve decided to simultaneously save for the increased E-fund goal and the Vanguard minimum of 3k. That way I’m easing my mind and looking out for the future.
Adding the CD to your E-Fund and making it 17.5k then saving seperately for the Vanguard minimum sounds like good middle ground. Eventually, interest on the E-fund will increase your balance to 20k.
You misunderstood. The eFund will be $17.5k if I use $3k of the CD to open the Vanguard account NOW. However, if I return ALL of the CD back to the eFund and save for Vanguard later, the eFund balance will return to over $20k, which meets my comfort level. [-SM]
I’d love to hear about your non-retirement investing experience, especially with Vanguard. I’ve got all of my Retirement accounts with them. One thing I haven’t figure out is if in a taxable account is more beneficial to have the dividends automatically reinvested or not (for tax purposes), or if there’s a difference at all.
It seems to me like the interest rates you have found are pretty bad, so another CD or whatever would be a bad buy. If you are looking into stock funds, stock prices are relatively low these days and thus, for good companies, a good buy. If you’re looking into REITs, you can decide better than I whether real estate prices are good or not. If you’re looking into bond funds, I’d guess that since people are still afraid of the market and running to bonds for safety, that those would be a bad buy. If you’re looking into a fund with high fees (ha!) that would be bad.
Some people think market timing is stupid, but I think minor timing like this is okay. You can compare the one-year, five-year, and longest-possible records for funds you are thinking of an pick one that’s relatively low (cheap) now to start with.
Another thing is to actually write down where all your money is and look at your allocations. Then compare that to what you’d expect based on your personality. And put this money where it will best help you get the right allocations.
Yes, it’s easy to sell your stocks (though it may take a few days to get to the money), but its always disappointing to have to sell them for less than you bought them for. And just because stocks are cheap now doesn’t mean they won’t get even cheaper. But if you have parts of your emergency fund in different places, you can start cashing out the places that give you the best deal first.
And finally, I really, really like your point about motivation. If you will be best motivated by putting it all back into the eFund and saving up extra for the Vanguard purchase, that may be the best deal of all for you. But I think you have the power to think up a motivating scheme for any goal you have.
“The CD was $7k so $3k to Vanguard would leave $17.5k in the eFund. It’s hard to explain, but less than $20k in my eFund makes me feel incomplete. Perhaps I should return ALL of it to HSBC, then set a goal to save $3k and open the Vanguard account by end of year. I need a new goal to keep me focused so I won’t shop. LOL[-SM]”
Sounds like you know what you want to do. If less than $20K makes you feel incomplete, then by all means, keep it at $20K. Comfort is more important than Vanguard and a goal associated with the shopping strike can’t hurt. No need to even try to explain…I know someone else who starts to twitch if his personal e-fund dips below the $15K…astrological soulmate. LOL.
See, it may be hard explaining to YOU, but I knew my ‘brother’ would understand. Ha! [-SM]
hmmm. Twitching if your e-fund dips below $15K. Is that perceived scarcity? j/k
At the risk of sounding like I forgot to count my blessings (lol), an eFund less than $10k makes me feel broke. [-SM]
Why is it hard to explain why less than $20K in your eFund makes you feel incomplete? Is it emotional, or is it numbers-based but complicated? I ask because I know everyone has different reasoning for the amount they keep in their emergency funds.
Everyone has their own comfort level, set of circumstances, perspective on life, definition of an emergency, and personal finance goals - so no matter what words I choose to explain, unless you know (and can relate to) my EXACT situation, you wouldn’t understand. [-SM]