I need a clue into Ben Bernanke’s brain or be a fly on the wall of an FOMC meeting.
In Virginia, I have to pay out simple interest on a security deposit if my tenant stays more than 13 months in my rental unit. The renter I have selected wants to stay for two years, though I am only signing a 12-month lease. I fully expect the renewal, but you never know.
So the question is, should I buy a 6-month CD and roll it over in 6 months? Or is there any point in getting a 12-month CD now? Technically this is a money maker for me because the interest rate set by the state is 0% for all of 2009. Therefore any interest I make in the first 6-months is actually mine to keep. But if I get a 12-month CD and the 2010 interest rate is set for higher than the 12-month CD rate, I may be out of luck and paying interest out of pocket.
I’m pretty sure this means I should be buying a 6-month CD and rolling it over to another 6-month CD, then a 12-month one once I get advanced notice from the tenant about renewal or moving out next year. But I’m not sure how to hedge for interest rates here. Are they going up or going down?
Got any ideas?
BTW, I will plug some ING Referrals. If you want one, leave me a comment and I will email you a referral.
EDIT: ps- I may have found my answer in this WSJ Online article from about a week ago.
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{ 3 comments… read them below or add one }
Ally bank (formerly GMAC) has pretty good rates on 6 and 12 mo CDs. Although they just went down this month from 2.8 to 2.5 (the 12 month). I have my emergency fund in a CD Ladder there.
I’d like an ING referral. thanks!
The fed funds rate is ridiculously and historically low so I don’t see it going lower. I think the Fed is more concernced over unemployment in the short-term rather than inflation so I don’t think rates will rise in this period either. In other words, rates will probably stay the same for the next 6 months.
So in this environment (rate staying the same), a 12-month CD will yield slightly more than a 6+6-month will but I don’t think you’re in a bad situation either way.
Bankrate.com has the national 6mo average at 1.461% and the national 1yr average at 1.957%. Say, 500 basis points to make it easier. 500 basis points on $1000 is $5. $5 per $1000 seems like a small opportunity cost to have a chance at a higher rate in 6 months. I would also not want to be spending too long thinking about it for $5 per $1000.