CDs

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Lemonyellowschwin's picture
Lemonyellowschwin
Status: Platinum Member (Offline)
Joined: Apr 22 2008
Posts: 561
CDs

Here's something I don't get:

If I was so scared that I would buy T-bills at 0%, why wouldn't I buy short-term FDIC-insured CDs?  In both cases my money is backed by the full faith and credit of the Insolvent States of America.  But with a CD I get a bit of interest.

Is it just a liquidity thing?

Sandman3369's picture
Sandman3369
Status: Bronze Member (Offline)
Joined: Dec 20 2008
Posts: 71
Re: CDs

Sounds like a great question, unfortunately I don't have the knowledge to explain...hopefully, another post will keep people looking until someone in the know answers.

affert's picture
affert
Status: Silver Member (Offline)
Joined: Sep 22 2008
Posts: 100
Re: CDs

I am by no means sure of this, but I'll venture a guess.  I think it has to do with the amount of money.  If you have, say, $1,000,000, you only have to spread your money around 10 banks to get full protection.  But what happens if you have significantly more then that?  At some point, balancing all the different accounts is no longer worth the hassle for the interest you would recieve. 

 Also, I think I remember hearing that rules regarding the protection of accounts differ for businesses vs. individuals.  

Would someone with actual knowledge like to help?

caroline_culbert's picture
caroline_culbert
Status: Platinum Member (Offline)
Joined: Oct 2 2008
Posts: 624
Re: CDs
affert wrote:

I am by no means sure of this, but I'll venture a guess.  I think it has to do with the amount of money.  If you have, say, $1,000,000, you only have to spread your money around 10 banks to get full protection.  But what happens if you have significantly more then that?  At some point, balancing all the different accounts is no longer worth the hassle for the interest you would recieve. 

 Also, I think I remember hearing that rules regarding the protection of accounts differ for businesses vs. individuals.  

Would someone with actual knowledge like to help?

First of all, most people/businesses don't have that kind of cash lying around in banks.  They usually invest their money in CDs, IRAs, and/or money market accounts/high yield savings to gain the best return on their cash.

Secondly, if they want to spread that type of money around to, say, four banks then the compounding rate of interest will yield according to how much the calculated balance was for that quarter (however often they compound).

Thirdly, if a person has that much in cash (typical savings and etc.) then there's something wrong-- they need a new financial advisor.

Many aslo buy tangibles that are equiv. to cash value or that will increase over time and gain better rate of return (fine art).  That way they can "avoid" taxes on their return capital (what value the object has appreciated to over time).

 

affert's picture
affert
Status: Silver Member (Offline)
Joined: Sep 22 2008
Posts: 100
Re: CDs

So are most of these bonds being purchased by individuals or by large funds and/or governments?

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