should I get a CD?

[BoxingTheStars]

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I was thinking about getting a CD as a way to get a better interest return than what I have with a savings account. I'm starting med school in august of this year, so I have roughly 7 months left. Is this a good idea? I figure there's not much point in getting a longer-duration one (ie, one lasting through med school) because I'll probably be paying more in interest on the loans I have to take out than if I just applied the money to my tuition bill instead... right? or are the interests calculated differently?

i'm pretty lost on this financial stuff so if anyone has other suggestions i'm open to them.

 

[etf]

how much are we talking here? and what kind of other savings/investments do you have?

 

[BoxingTheStars]

not a whole lot. i have about $2000, and no investments of any kind (just graduated last spring). i know the interest won't be a whole lot, but i just figured it was better than nothing...

 

[etf]

i'd stick it into one of those high-yield online savings accounts like those offered at hsbc or ing direct. you'll make slightly less than a cd, but for $2000 the difference is negligible, and you'll probably need the liquidity since you don't seem to have "emergency savings."

 

[The White Coat Investor]

i'd stick it into one of those high-yield online savings accounts like those offered at hsbc or ing direct. you'll make slightly less than a cd, but for $2000 the difference is negligible, and you'll probably need the liquidity since you don't seem to have "emergency savings."

That's good advice.

 

[TMP-SMX]

i'd stick it into one of those high-yield online savings accounts like those offered at hsbc or ing direct. you'll make slightly less than a cd, but for $2000 the difference is negligible, and you'll probably need the liquidity since you don't seem to have "emergency savings."

Agreed. Then put your loan refund in the account too until you need it. That way it builds interest until you need it.

 

[Stroganoff]

I checked out Bankrate's list of high-yield online 6-month CDs ( http://www.bankrate.com/brm/rate/high_ratehome.asp?web=brm&prodtype=invest&product=14&sort=2 ), and the highest yields are 5.1x%. Not worth it. Some of the upper tier high yield savings accounts (FNBODirect, e-trade) offer 5.05%, and other extremely popular ones (ING Direct, Emigrant Direct, HSBC Direct) offer 4.10%, 4.65%, and 4.25%, respectively.

The next Fed interest rate meeting is January 29-30, and rates are likely to be lowered once again. In my opinion (take with a grain of salt), if I had $2000 and starting a new school in the fall, I'd stash it in either Emigrant Direct (have an account) or FNBO Direct (new player in direct banking but seems competitive so far).

Don't spend it!!

 

[BoxingTheStars]

Wow, thanks everyone! I had no idea high-interest savings accounts even existed. I will definitely check some of them out, it seems like a better idea since I can continue to add my paycheck leftovers to it up until school starts.

 

[Tenesma]

difference:

high-yield online savings account: high interest rate - but sometimes slow/difficult to actually extricate money if you need it in a hurry (very rare now that you could always use a 0% credit card to carry you over)

CD: high interest rate - very easy to extricate money - but if you do take the money out you lose out on ALL the interest that accrued since inception

pick your poison

with such a low amount (2k) it really doesn't make much of a difference - and it may be easier to just open a money market account at your bank and negotiate a higher interest rate --- down-side is that if you are going to negotiate a rate you need a larger banking relationship with that bank - and other down-side is that the higher money market accounts require higher minimum balances (usually 2,500 or greater) to generate interest

 

[773 doc]

I'd to go with high yield savings online.

I bank with HSBC, don't imagine it makes much difference which one you choose so i guess I'd go with who has the highest rate.

With HSBC, and I imagine it's not different with others, it shouldn't take longer than 3 business days to put and pull money. Just have it linked to a checking account...

 

[etf]

although, if you could bump that up to $2500, you'd have enough to open a fidelity account 😀

 

[Finally M3]

FWIW Countrywide's short-term CDs (3 mo and 6 mo) have an APY of 5.2%. add to the fact that if the fed drops interest rates, the savings accounts like Emigrant, HSBC, etc. will drop as well.

Our Emigrant APY has dropped to 4.6 from the initial 5.something we got when we created the account.

 

[Bobblehead]

If you have enough money for the minimums at Vanguard you can consider a Vanguard MMF in addition to the high-yield savings. Depending on your federal tax rate the Tax-Exempt fund may provide better after tax returns than Prime. To determine this use this calculator which one of the posters from the Diehards.org board created:

http://thefinancebuff.com/2007/04/which-vanguard-money-market-fund.html

 

[PreMD86]

Don't you pay taxes on the interest that accumulated on a CD when withdrawing it?
If so, the interest rate would be, at best, identical to the inflation rate. Seems like there are much better things to do with the money.

 

[Bobblehead]

You will pay taxes on interest earned per year in any non-tax sheltered savings account, money market account, money market fund, CD, or bond (non-federal, non-municipal). However money allocated to such vehicles is usually money that one will use in short order (less than 5 years) or for emergency use that must be immediately available. As such you're unlikely to put it into something that will give you higher returns due to the risks involved.